Liberalised Remittance Scheme (LRS): Rules, TCS, and Common Mistakes NRIs and Residents Make

LRS is the primary route for Indian residents to send money abroad — for education, travel, investment, gifts, or property purchase. The rules are straightforward but the TCS implications and FEMA compliance trip people up. Here is your complete guide.

WHAT IS LRS?
Under the Liberalised Remittance Scheme, any resident individual (including minors through their guardian) can remit up to USD 2,50,000 per financial year for permitted current and capital account transactions.

PERMITTED PURPOSES
Current account: Private visits, gift/donation, business travel, medical treatment, education
Capital account: Opening foreign currency account, investment in shares/property abroad, setting up JV/WOS

NOT PERMITTED
LRS cannot be used for: Trading in foreign exchange, margin calls, lottery/gambling, purchase of FCCBs issued by Indian companies

TCS ON LRS REMITTANCES (this is where it gets expensive)
Budget 2023 significantly increased TCS:
- Education funded by loan: 0.5% above Rs 7 lakh
- Education from own funds: 5% above Rs 7 lakh
- Medical treatment: 5% above Rs 7 lakh
- Tour packages: 20% (no threshold — from first rupee after Oct 2023)
- ALL OTHER purposes (investment, gift, property): 20% above Rs 7 lakh

20% TCS means if you remit Rs 50 lakh for overseas investment, TCS = 20% of Rs 43 lakh (above Rs 7L) = Rs 8.6 lakh deducted by the bank. You get this back when you file ITR and claim refund. But the cash flow impact is massive.

COMMON MISTAKES
1. Not reporting LRS remittances in ITR: Schedule FA (Foreign Assets) must be filled if you hold foreign assets. Even a USD savings account triggers this.
2. Exceeding USD 2.5 lakh without realizing: Multiple remittances through different banks are aggregated. Banks are supposed to check, but the onus is on you.
3. Using LRS for business payments: LRS is for personal transactions only. Business payments must go through normal banking channels with proper FIRC.
4. Not collecting Form 15CA/15CB: For remittances requiring CA certificate (15CB), banks will not process without it. Plan this in advance — CAs need 2-3 days for 15CB.

FOR NRIs RETURNING TO INDIA
When you return and become a resident, your overseas assets acquired as NRI are not subject to LRS limits. But reporting in Schedule FA is mandatory from the year you become resident. Many returning NRIs miss this and face penalty under the Black Money Act.