Why in the news?

  • Outward remittances by resident individuals under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) stood at $2452.93 million in July 2025, registering an 11% year-on-year decline.

Liberalised Remittance Scheme

  • What is it?:
    • The Liberalised Remittance Scheme (LRS) allows resident individuals, including minors, to remit a certain amount of money abroad for permitted current and capital account transactions.
    • It is part of India’s gradual capital account liberalisation.
    • It was introduced by the Reserve Bank of India (RBI) in 2004.
  • Key Features:
    • Remittance Limit: As of 2023–24, up to USD 250,000 per financial year per individual.
    • Eligible Persons: Only resident individuals (not corporates, partnership firms, HUFs, etc.).
    • Clubbing Not Permitted: Remittances cannot be pooled from multiple individuals to bypass the limit, except for family members going on joint trips, studies, or maintenance.
    • Mode: Transactions must be routed through Authorised Dealer (AD) banks.
  • Permitted Uses under LRS:
    • Education Abroad – tuition fees, living expenses.
    • Medical Treatment Abroad.
    • Travel & Tourism (private visits, business trips).
    • Maintenance of Close Relatives Abroad.
    • Investment Options:
      • Purchase of shares, debt instruments, mutual funds.
      • Setting up Joint Ventures/Wholly Owned Subsidiaries (within rules).
      • Acquisition of immovable property outside India (except in countries prohibited by FATF or close to India’s security concerns).
    • Gift and Donation to persons/charities abroad.
  • Restrictions on use of LRS:
    • Margin trading, lottery tickets, sweepstakes, betting or gambling.
    • Remittances to countries identified by FATF as non-cooperative or with strict tax-haven characteristics.
    • Capital account remittances for corporates or partnership firms.
    • Trading in foreign exchange abroad.
  • Significance:
    • Encourages international education, tourism, and investment opportunities.
    • Provides flexibility to Indian residents in managing global financial needs.
    • Acts as a capital account management tool for RBI to regulate forex outflows.
  • Challenges:
    • Rising outward remittances may put pressure on India’s forex reserves.
    • Misuse for round-tripping or money laundering.
    • High TCS burden discourages middle-class international travel/study plans.
    • Administrative hurdles and compliance requirements at AD banks.