LRS was brought in as a relief to all Indian Residents to remit  money outside India. Intially brought in partial capital account convertibility by allowing  specified capital account transactions up to the LRS limit.

It is available to all Resident Individuals including minors. Up to USD 250,000 per financial year can be remitted every Financial Year.  It was introduced on February 4, 2004, with a limit of USD 25,000. The limit has increased over the years but reduced in between due to  forex reserve position . All earlier facilities for release of exchange or for remittances  for current account transactions are now  subsumed under the overall limit of USD 250,000 – no  separate limits for gifts, donations, etc.

LRS when introduced was with clear objective to allow  Resident Individuals to remit funds within LRS limit for  “any purpose”: For any Current Account Transaction; or  For any Capital Account Transaction; or For a combination of both!. Funds up to the limit would be partial capital account  convertibility. It can be used to purchase any asset outside India without approval of RBI . Initially  Limit of LRS was in addition to limit under Schedule III. However now it is quire restrictive and allows only permitted transactions to be remitted.

How it operates

Liberalised Remittance Scheme (LRS) was introduced by Reserve Bank of India (RBI) vide A.P. (DIR Series) Circular No. 64 in 2004 as liberalization measure to facilitate resident individuals to remit funds outside India. Following is the Regulatory framework-

Section 4 of FEMA: Blanket prohibition: No person resident in India shall acquire, hold, own, possess or  transfer any foreign exchange, foreign security or any immovable property situated  outside India

Section 5 of FEMA: Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction:

Provided that Central Government may, in public interest and in consultation with RBI, impose  such reasonable restrictions for current account transactions as may be prescribed

FEM (Current Account Transaction) Rules, 2000

Section 6 of FEMA:

Section 6(1) – Any person may sell or draw forex for a capital account transaction subject to

Sections 6(2) and 6(3) gave powers to RBI to prescribe, regulate, prohibit or restrict  transactions

Section 6(3) deleted post Finance Act 2015, Notifications now issued by Government

      • First such notification issued in 2019 – RBI regulating in legal vacuum between 2015 and 2019

> Legislated by Ministry of Finance, Regulated by RBI & Enforced by ED

Master Direction on LRS-  FED Master Direction No. 7/2015-16 updated up to 20/06/2018

FAQ updated till 13 Feb 2019

LRS background-

It was introduced in 2004. Later drastic change in position brought in from May 2007  LRS can be used to remit for any ‘permissible’ current or capital account transaction or a combination of both. No guidance on what is ‘permissible’ transaction in 2007. Paradoxical situation as LRS was introduced to allow transactions which required prior approval. Permissible capital account transactions under LRS specified only in 2015.

LRS – LRS specifies “permissible” current account transactions

Following are the permissible ” current account transactions-

(i) Private visits to any country (except Nepal and Bhutan).

(ii) Gift or donation.

(iii) Going abroad for employment.

(v) Maintenance of close relatives abroad.

(vi) Travel for business or attending a conference or specialised training; or for meeting expenses for meeting medical expenses, or  check-up abroad; or for accompanying as attendant to a patient going  abroad for medical treatment/ check-up.

(vii) Expenses in connection with medical treatment abroad.

(viii) Studies abroad.

(ix) Any other current account transaction Permitted  Current Account Remittances

Prior Approval needed from RBI for remittance beyond LRS limit for specified current account transactions Is possible if circumstances warrant need for enhanced remittance eg Approval not required for Emigration, Medical Treatment and Studies abroad. It can be done by supported self-declaration. Though Banks might ask for more documentation .

Limits for Gifts and Donations are now subsumed under LRS limit

Gift of funds by one resident to another resident outside India not  allowed

Any gift made to a resident outside India needs to be brought back to India.

Shares allowed to be retained abroad . The intention is to cover portfolio shares.

LRS – Capital Account Transactions

Following Capital Account Transactions are permitted for remmitance-

  • Opening of foreign currency account abroad with a bank;
  • Making investments abroad- acquisition and holding shares of both listed and unlisted overseas company or debt  instruments;
  • Acquisition of qualification shares of an overseas company for holding the post of Director;
  • Acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s  remuneration;
  • Investment in units of Mutual Funds, Venture Capital Funds,  unrated debt securities, promissory notes;
  • Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in  Companies Act, 2013.

Capital Account transaction -other than those specifically permitted not allowed:

LRS- Immovable Property Outside India

Resident individual can send remittances under the  Liberalised Remittance Scheme for purchasing IP outside  India.

Such Immovable Properties can be

> Leased

> Sold

> Funds from lease and sale can be retained outside India

> Funds retained can be reinvested


> Multiple LRS remittances can be clubbed for purchase of  high value IP

> One individual can remit USD 250,000 in foreign bank account over  multiple years until sufficient funds are collected

Points to note: Remittance to non-cooperative countries listed by FATF  not allowed under LRS


A Resident can acquire property purchased through LRS  by inheritance or gift

The RI Can retain such IP abroad from 21.1.2016 as per Notf. 7(R), However, on sale of such property, funds will have to be  brought back to India.   Incomes earned on such property will also have to be brought back to India.

LRS-ODI by Resident Individuals

Resident Individuals were  allowed to invest in shares–both listed and unlisted since 2004 when the LRS was allowed. Suddenly FAQs of 17th September 2010 stated for first time  that LRS cannot be used to setup company abroad . (Point (v) in reply to Q. 3 of the FAQ) .Though  FAQ is not law  Master Circulars of 2011 and 2012 still stated that investment can be made in shares (listed or otherwise). This created confusion on investment in shares.

Present Status-Now the RBI has   issued notification to allow JV/WOS outside India  under LRS-ODI from 5th August 2013 .  Notification No. FEMA. 263/RB-2013.

  • Investment limited to LRS limit – USD 2,50,000 per  Financial Year
  • Includes investment from balances in EEFC and RFC Accounts
  • Investment can be made singly or in association with  other Resident Individuals or with Indian Party
  • Only for bonafide business outside India
  • Prohibited to invest in a JV / WOS which is engaged in
    • Real estate business; or
    • Banking business; or
    • Financial services activity
  • Investment only in equity or compulsorily convertible  preference shares
  • Investment only in operating entity, Hence, no step-down subsidiary is allowed
  • Effectively no SPV can be created
  • No guarantees allowed
  • No pledge of shares allowed
  • No non-cash remittances allowed
  • Charge on domestic or foreign assets not allowed
  • Write-offs not allowed
  • Investment needs to be through banking route
  • Use of credit cards or cash withdrawals to open companies outside  a violation of FEMA
  • Gifting of shares by relatives or non-relatives may not strictly fall within RBI intent – but better to go through LRS-ODI Route

Valuation of shares  to be done as prescribed

RI Cannot invest in countries identified as “non-cooperative  countries and territories” by FATF- North Korea & Iran.

Resident individual should not be on  Reserve Bank’s  Exporters Caution List or  List of defaulters to the banking  system or  under investigation by any  investigation/enforcement agency or regulatory body.

LRS-ODI by Resident Individuals – Reporting & Disinvestment

  • Duly completed Part I of the Form ODI to be filed within 30 days of remittance. It is always advisable to inform banker in advance and submit relevant document for vetting.  They take their own sweat time to clear the same. Many banks also impose bank charges for the remmitance which shall be enquired in advance for the sack of clarity and cost.
  • APR Form to be filed annually
  • Alteration in shareholding pattern to be reported within 30 days
  • Disinvestment allowed only after one year from the date of first  remittance
  • Disinvestment proceeds to be repatriated to India immediately and in  any case not later than 60 days
  • No write off shall be allowed
  • Disinvestment may be reported by the designated AD to the Reserve  Bank in Part IV of Form ODI within 30 days of receipt of proceeds


  • Furnish Form A2 to the bank
    • basic details (applicant name, PAN, name of AD Branch and receiver details)
    • purpose and its code for which the individual is remitting the amount,
    • declaration by the applicant and certificate by AD that the amount remitted throughout the financial year does not exceed the limit and is not used for the prohibited purposes.
  • Mandatory quoting of PAN
  • Self-declaration process for remittances; AD bank verification
  • Remittances to be undertaken through designated authorised dealer bank and branch. NOC required if remittances are from different banks
  • Source of funds through prior bank statements/IT returns can be verified by AD banks prior to LRS remittances
  • Foreign bank account details – sought by AD banks now. Added scrutiny for remittances into overseas personal bank accounts
  • Minimum banking relationship of 12 months for remittances towards capital account transactions under LRS
  • Not mandated to repatriate LRS proceeds; can be retained overseas/ reinvested

Prohibitions Under LRS

Following transactions are prohibited-

  • Capital account remittances, directly or indirectly, to  countries identified by the Financial Action Task Force  (FATF) as “noncooperative countries and territories”,  from time to time. Eg North Korea and Iran
  • For remittances directly or indirectly to those  individuals and entities identified as posing significant  risk of committing acts of terrorism
  • For remittance from India for margins or margin calls to overseas exchanges / overseas counterparty
  • Remittances for purchase of FCCBs issued by Indian  companies in the overseas secondary market.
  • Remittance for trading in foreign exchange abroad
  • Remittance for any purpose specifically prohibited under Schedule (like purchase of lottery tickets/sweep stakes (gambling etc), prescribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.

Consequences of non-disclosure under FEMA

What are the disclosure requirement of LRS transaction.

Genrally No requirements for disclosure under FEMA – If investment is in line with FEMA, no consequences even if not  disclosed under Income-tax.  If investment made violating FEMA, stringent consequences will follow which includes ED action. FEMA is now more draconian than FERA for foreign assets. It may be noted that Prosecution which was absent from FEMA earlier now part of it  again.  Now Seizure of equivalent assets in India  is also allowed to ED. Section 37A introduced vide Finance Act, 2015 in FEMA for criminal offence. In many cases already applied by ED to seize assets in India. it c an also lead to penalty and prosecution. In addition to FEMA consequences under Black Money Act primary and  substantial.

LRS – Compounding

LRS violations can be compounded with RBI.

Only route to avoid enforcement by ED. Compounding means you are seeking forgiveness.The typical procedure requires violations would need to be regularized before they can be compounded.  Regularisation can be in the form of filing of forms if investment or  transaction is allowed under FEMA at present Fees should be token and violations are technical in nature. It can be compounded even if transaction was not permissible earlier. Generally  Regularization can be in form of “cease & desist” resulting in  winding up of structure or sale of investment in cases where  transaction is not permissible under FEMA. The Fee can consider actual gains at the discretion of the Officer. Further Intention and severity can be determining factors

Foreign Assets Disclosure- Under ITR Forms

Though remittance of fund under LRS is under automatic route and investment can be made overseas. One shall keep in mind the requirement of disclosure  of foreign assets under income tax return-

Now it is  Mandated as part of Income-tax Forms as Schedule FA
Schedule FA covers:

Depository Accounts

Custodial Accounts

Foreign Equity & Debt Interest in any entity

Foreign Cash Value Insurance or Annuity Contract

Financial Interest in any Entity

Immovable Property

Any other Capital Asset

Accounts with Signing Authority


Any other “income” derived from source outside India not included above and income under the head business or profession


The LRS facility is a genuinely generous facilty to remit Funds out of India. It shall be used carefully compiling all requirement under scheme which gets updated from time to time.

For any query author can be contacted at dmantri(at)Hotmail(dot)com.

Author Bio

Qualification: CA in Practice
Company: N/A
Location: Indore, Madhya Pradesh, IN
Member Since: 24 Sep 2017 | Total Posts: 3
FEMA, International Taxation, transfer pricing, NRI Tax Issues at Indore Madhya Pradesh (MP) View Full Profile

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One Comment

  1. venkat says:

    I am looking to send money to a foreign company for business and trade.
    Can you let me know how do I send money regularly.

    Like I want to send 10 lakhs every day is there any way.

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