Clarification – Increase in the limit from USD 75,000 to USD 125,000 for resident individuals under Liberalized Remittance Scheme (LRS) {Notification No. “RBI/2014-15/132 A.P. (DIR Series) Circular No.5 dated 17th July, 2014}

Before going into the revision made in Liberalized Remittance Scheme, let us know what it is actually?

The Reserve Bank of India had announced a Liberalized Remittance Scheme (the Scheme) as per the powers conferred on it under FEMA Act, 1999 in February 2004 as a step towards further simplification and liberalization of the foreign exchange facilities available to resident individuals. Under the Liberalized Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 125,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. Under the Scheme, resident individuals can acquire and hold shares or debt instruments or any other assets including property outside India, without prior approval of the Reserve Bank. Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the Scheme. It is mandatory to have PAN number to make remittances under the Scheme. The remittances can be made in any freely convertible foreign currency equivalent to USD 125,000 in a financial year. This is a big blow which will encourage investments outside India which has been taken after longtime, as several restrictions have been imposed on the outflow of capital outside India when the rupee plummeted last year. It is pertinent to note that the CAD of India was 4.7% of GDP, which has nosedived to 0.2% of CAD during Q4 of FY14.

However, the aforesaid scheme is not applicable on the following:

  • Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000;
  • 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;
  • Remittances directly or indirectly to Bhutan, Nepal, Mauritius and Pakistan;
  • Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non co-operative countries and territories”, from time to time; and
  • Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

The facility under the Scheme is in addition to those already available for private travel, business travel, studies, medical treatment, etc., as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000. The Scheme can also be used for these purposes. However, remittances for gift and donation cannot be made separately and are subsumed under the limit available under this LRS. Accordingly, resident individuals can remit towards gifts and donations up to USD 125,000 per financial year under the Scheme.

The remittance under the Scheme is in addition to acquisition of ESOPs linked to ADR/ GDR. The remittance under the Scheme is in addition to acquisition of qualification shares. A resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc. under this Scheme. Further, the resident can invest in such securities through the bank account opened abroad for the purpose under the Scheme. In terms of the extant FEMA provisions LRS can be used to acquire both listed and unlisted shares of an overseas company. There is no restriction on the frequency. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 125,000. Once a remittance is made for an amount up to USD 125,000 during the financial year, he would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country. With effect from August 05, 2013, this Scheme, can be used by Resident individuals to set up Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS) outside India for bonafides business activities within the limit of USD 125,000 subject to the terms & conditions stipulated in FEMA Notification No.263

As per the Scheme, resident individuals may remit up to USD 125,000 per financial year for any permitted capital and current account transactions or a combination of both.It was decided vide A.P.(DIR Series) Circular No. 138 dated June 3, 2014, to increase the limit to USD 125,000 per financial year (April-March) from USD 75,000. In this regards, it has been clarified that this Scheme can now be used for acquisition of immovable property outside India.

(Compiled by –Aditya Singhania & Nischal Agarwal)

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  1. Prabhakar says:

    Hi, When I was working for a foreign bank group in India, I was allowed to invest in shares of that bank listed overseas from out of monthly salary.(Total investment less than USD 15000) I was initially getting the periodical dividend payments converted to shares but of late have started to receive dividend by way of USD cheques that I deposit into my account in India.

    Please clarify:
    1. Under efiling of ITR where should I show this investment.
    2. How do I account the shares issued in lieu of dividend. A tax deduction was also made from out of these dividend payouts on conversion to shares.
    Now that I have started to receive dividend in USD cheques that I encash in India, should I treat it as income from other sources and pay ITax as per my slab OR can I deem it as share dividend and take it under exempted income?
    3. Also on sale of these shares at a later date(shares held for over 7-8 years)is Capital Gains Tax payable or can I show it as Long Term Capital Gains Tax and seek exemption?
    Appreciate your clarity on this. Many thanks!

  2. Sumanta Das says:

    Dear Sir,
    If I get some profit in “Binary option” trading with a us based broker and they payout the fund through wire transfer in my account, then will it be illegal? they are saying that they will send my invested capital directly to my account and other withdrawals will be transferred by wire transfer to my account.

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