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Practical tips to use RBI's Liberalised Remittance Scheme


While the scheme looks attractive on paper, it is ridden with several practical roadblocks. Confusion exists on what is allowed under the scheme.

As a step towards further simplification and liberalization of foreign exchange facilities available to resident Indians, the Reserve Bank of India (RBI) announced the Liberalised Remittance Scheme (LRS).

Thanks to this scheme, foreign remittances today can be freely made by residents to the extent of $200,000 per financial year. Remittances made under the LRS can be used to buy property abroad or to invest in shares, mutual funds or debt instruments in any foreign country without prior approval of the RBI.

While the scheme looks attractive on paper, it is ridden with several practical roadblocks. Confusion exists on what is allowed under the scheme, what documents are needed to be submitted and so on. Let us try to throw light on these practical aspects.

What can the LRS be used for?

LRS can be used for:

  • Buying property abroad
  • Investing in shares, securities, bonds, mutual funds abroad
  • Opening and maintaining foreign currency accounts with banks outside India for carrying out the above mentioned transactions
  • Gifts and donations abroad

The RBI prescribes separate limits for other remittances such as travel, education or medical expenses (see table). These limits are in addition to the limits prescribed by the LRS.

These limits are also gross limits. That is, you can remit up to these limits out of the country irrespective of how much you bring in. For instance, if a customer decides to open a broking account abroad and deposits $200,000 (under the Liberalised Remittance Scheme) and later that year, decides he wants to withdraw all his money and open an account at another financial institution, he will not be able to do so.


What is not permitted under the LRS?

The following transactions are not permitted for remittance under the LRS:

  • Transactions that are explicitly prohibited by RBI such as purchase of lottery tickets, sweepstakes etc
  • Remittance from India for margins or margin calls to overseas exchanges
  • Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market;
  • Remittance for trading in foreign exchange abroad;
  • Remittance by a resident individual for setting up a company abroad;

There is also restriction on remittance to some countries like Bhutan, Nepal, Mauritius, Pakistan and certain other countries that are enlisted by the Government from time to time.

How does the bank verify your purpose of remittance?

At the time of making remittance, you would have to submit a self declaration form stating the purpose of your remittance. The bank or authorised dealer will only go by your declaration.

What is the procedure to remit funds under the LRS?

Step 1: Approach your bank to make the remittance. If you have been an account holder in the bank for less than one year, you would need to provide copies of bank statement of the previous year or copies of the latest income tax return or assessment order.

Step 2: Submit the application cum declaration form A2

Step 3: Submit a draft for the amount you want to remit

While these are the only documents needed to be submitted, several banks ask for other documents such as a Form 15CA and 15CB.

"These documents are completely unnecessary for this type of transaction and are not at all required by RBI. Based on what our customers tell us, the cost of getting these documents completed can range from Rs 3,000 to Rs 6,000," says Neel Pujara, Co-Founder and CEO of Duniyatrade.com, an online broker that enables Indians to invest in the US markets.

In fact, in 2011 the RBI called for a review of the remittance facilities. The report recognized the need for clarity on remittance procedures.

'There is no clarity or uniformity among ADs and while some ADs insist on the submission of the Form 15 CA/CB for remittances under the Liberalised Remittance Scheme (LRS), some insist only for remittances above US $ 5000 and some don't obtain Form 15 CA/CB at all. This is borne out by the survey results (Annex V) and is not an acceptable situation as it means some residents are subjected to unnecessary costs and harassment while others are not,' the report stated. The report further went on to recommend, 'To enable hassle-free remittances by resident individuals banks may be advised by RBI not to insist on the submission of form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme (LRS).'

We can hope that the process becomes clearer and more transparent in the coming days. But in the meantime, if you plan to use the LRS, here are some tips from Pujara, "An individual needs to be very well aware of these limitations.

There is an extensive list of FAQs on the RBI site which might be helpful. Although some of it might still be unclear, we recommend that you go through it to understand the requirements.

One needs to go into the bank, educated, before giving the bank an opportunity to pose difficulties. Most the time, it's the bank which is actually unaware of the LRS process."

If the bank officer is unaware of the regulations, Pujara advices that you educate him with information from the RBI website and persistently follow up with his superiors.

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