Liberalized Remittance Scheme (LRS) 2025 Guide - Meaning and RBI Guidelines Explained

Today, we see thousands of students pursuing higher studies abroad, families supporting their loved ones overseas, and investors looking beyond borders to diversify their portfolios. All these activities require one common support, a means to send money abroad safely and legally. 

To make this possible, the Reserve Bank of India (RBI) introduced the Liberalized Remittance Scheme (LRS) in 2004. 

What exactly is the LRS scheme? How does it work? And why does it matter? We'll answer all these and more in this article.

The LRS scheme lets Indian citizens send money abroad for some specific reasons. The LRS full form is the Liberalized Remittance Scheme, and it is part of the Foreign Exchange Management Act (FEMA), 1999. It is a structured plan by the RBI and sets the rules on who can send money, how much, and for what purposes.

The Liberalized Remittance Scheme (LRS) features include rules for eligibility, annual limit, permissible uses, documentation, tax compliance, and mode of remittance.

Eligibility for the LRS scheme

Only resident individuals of India can make use of this LRS scheme, including minors whose guardians act on their behalf. Partnership firms, trusts, and non-resident Indians (NRIs) are excluded from this scheme.

Annual limit for the LRS scheme

Up to USD 250,000 remittance is permitted for all purposes every financial year. If family members individually want to send money, every member is allowed up to USD 250,000 annually, provided they complete separate paperwork and follow the rules laid out.

Permissible uses

Remittances can be made for education, travel, medical treatment, gifts, donations, investments (including shares, securities, real estate, and startups), emigration, and foreign business visits.

Documentation

LRS scheme users must provide their PAN card, fill out Form A2, and clearly provide justification for sending money. Make sure that you keep your KYC updated, as it helps the bank process your request quickly.

Tax compliance

Tax Collected at Source (TCS) is applicable on funds that exceed ₹10 lakhs in a year at different rates according to the purpose of the transaction. However, if you are using an education loan, you don't have to pay TCS.

Mode of remittance

Transfers can be done through authorized dealers, like the banks, via wire transfer, demand drafts, or foreign currency cards.

Next, let's look at the LRS scheme limits to know how much funding you can send abroad.

As per the Liberalized Remittance Scheme (LRS), every resident individual of India has a limit of USD 250,000. This limit resets on April 1 every year.  As mentioned in the LRS scheme, this limit applies per person, not per family. For example, if a family has about 4 members, each individual is permitted a limit of USD 250,000.

The LRS transaction process involves determining the purpose of remittance, selecting an RBI-authorized dealer (AD) bank, completing documentation and verification, and sending the money.

Step 1:  Purpose of remittance

Decide the purpose of your remittance. Is it education? Travel? Or a medical treatment? Make sure to keep documents such as admission letters or medical bills ready to support your claim.

Step 2: Pick an RBI-authorized dealer (bank)

Visit any authorized bank or remittance service approved by the RBI. Today, most banks also provide online services for LRS transactions.

Step 3: Documentation

Complete Form A2 to mention your remittance purpose. Submit your PAN card, identity proof, and any supporting documents, such as invoices or admission letters.

Step 4: Bank verification

The bank verifies your KYC to ensure that your yearly remittances don't exceed USD 250,000, and also verifies that your documents are in order.

Step 5: Remittance execution

After your request is approved, the bank sends the money abroad by wire transfer, demand draft, or forex card. You'll get a confirmation as proof of payment.

Step 6: Keep your records

All receipts and messages from your bank are important proof of transactions; store them responsibly.

Step 7: Check latest updates 

Before any remittance, check the latest RBI notifications and your bank updates, as the LRS scheme and tax guidelines get updated frequently.

The Liberalized Remittance Scheme (LRS) is flexible as it allows individuals to use their remittance limit for a wide variety of purposes, including education, medical treatment, travel, investments, etc.

The LRS scheme is inapplicable for NRIs as they have separate rules and different accounts (NRO/NRE/FCNR) devised for them. If you are an NRI, please check with your bank to select the process for sending money abroad under your specific account and resident status.

Some key benefits of the LRS scheme include high remittance limits, overseas education support, investment opportunities, etc. These make sending money abroad convenient for Indian residents:

High remittance limit

Individuals can send up to USD 250,000 abroad, per financial year, supporting various personal and investment needs beyond India's borders.

Overseas education support

Indian students and families can pay tuition fees, accommodation, and living expenses abroad easily under LRS.

Investment opportunities

The LRS scheme lets you invest in foreign stocks, bonds, real estate, and startups, helping you diversify your investments.

Travel

The LRS scheme can be used to cover fares for international travel, including flights, hotels, and other expenses, for both personal and business trips. As recorded by Economic Times, the outward remittances (LRS) rose to 8% in April 2025, with travel spending at the forefront of reasons.

Streamlined process and compliance

The LRS scheme ensures compliance with RBI and FEMA regulations, supports bank services and reduces paperwork and delays. 

Before using the LRS scheme, it’s important to understand the main challenges and risks involved. These include strict monitoring, complex processes, annual limit restrictions, tax compliance, exchange rate volatility, and restricted transactions.

1. Strict monitoring

The RBI and the bank closely monitor transactions to prevent any misuse of funds transfer. Any suspicious activity detected by them leads to a penalty.

2. Complex process of documentation verification

Documents such as PAN, Form A2, purpose declarations, and the necessary KYC documents are to be submitted to make use of the LRS scheme. Any missing or incorrect documents can delay or result in the rejection of transactions.

3. Annual limit constraints

The yearly USD 250,000 limit may prevent you from sending large amounts for business or investment purposes. If you need to send more capital, you must obtain RBI permission, which is a time-consuming and not guaranteed process.

4. Tax compliance and TCS

You need to understand the Tax Collected at Source (TCS) rules under LRS. It is charged when the amount exceeds ₹10 lakhs per year, which complicates the process of tax filing. Thus, it's essential to keep all documents organized and file taxes on time to receive your TCS refund.

5. Volatility of foreign exchange rate

Changes in currency rates can reduce the amount your recipient receives, which can be a problem for fixed costs such as tuition or medical bills.

6. Certain restricted transactions

The LRS scheme strictly prohibits transactions for gambling, margin trading, and transactions with blacklisted countries. 

TCS is a tax that is automatically collected by the bank at the time of remittance for LRS transfers that exceed ₹10 lakhs (approximately USD 12,000) per year. This tax can be adjusted or claimed back when individuals are filing income tax returns.

From April 1, 2025, the revised TCS rates on LRS remittances for resident individuals are as follows:

Some important notes to consider:

• The threshold limit of ₹10 lakhs per financial year applies to all categories of LRS remittances combined across all banks and payment modes.

• The TCS applies collectively to remittances made under LRS via all authorized dealers (ADs) and RBI-licensed entities.

• TCS is also applicable to foreign exchange withdrawals used for air travel and hotel bookings.

• Capital account transactions such as opening bank accounts abroad, investments, or the purchase of immovable property cannot be made via credit, prepaid, or debit cards and have specific rules under LRS.

The RBI's Liberalized Remittance Scheme (LRS) was introduced in 2004 and, over time, has adapted to new technology by updating its rules. Some recent trends include better digital access, increased TCS threshold, broader global use, and periodic regulatory adjustments.

Broader digital access  

Nowadays, we see an increasing number of banks and fintech companies offering user-friendly online channels to remit money under the LRS scheme. This facility has simplified overseas transfers, streamlining the process from the comfort of a screen. 

TCS threshold raised 

Earlier, the TCS exemption limit was ₹7 lakhs per financial year for LRS remittances. To ease compliance burdens on people, the government extended this limit to ₹10 lakhs, effective FY 2025 onwards.

Increase in global use 

Many Indian residents are now using LRS to avail international medical treatments, pursue higher studies, etc. This records a steady increase in the annual LRS transactions, reflecting the scheme's role in India's global financial integration.

Periodic regulatory adjustments by the RBI 

The limits, rules, and requirements of the LRS scheme are revised by the RBI from time to time. These RBI-proposed changes ensure easy access and protect the country's economy. 

To make the most of the LRS scheme, you need to follow some best practices. These ensure your remittance experience is smooth, compliant, and hassle-free.

• Always clarify your purpose honestly—banks and RBI are strict.
• Keep your PAN and KYC updated with the bank.
• Retain remittance receipts and bank confirmations.
• Plan your remittances to avoid crossing limits prematurely.
• Claim back TCS in tax returns promptly.
• Consult professionals for large or complex foreign investments or property purchases.

The RBI’s Liberalized Remittance Scheme (LRS) lets Indian residents send money abroad for education, medical care, investments, travel, and family support in a safe and easy way.

Just how LRS simplifies outward remittance for individuals, Xflow simplifies inward remittance for businesses and individuals. Xflow offers faster transfers, better exchange rates, simple rules, and smooth integration to especially help businesses, exporters, and startups manage their international payments with ease