Sending Money Abroad? Must-Know Implications of The Revised Liberalised Remittance Scheme (LRS) For Resident Individuals

Introduction:

The Liberalised Remittance Scheme (LRS) has long been a vital tool for resident individuals in India, enabling them to remit funds abroad for various permitted transactions. However, recent revisions to the LRS have introduced significant changes that individuals need to be aware of. This blog aims to provide an overview of the revised LRS and its implications for resident individuals looking to remit money abroad.

Background on the Liberalised Remittance Scheme:

Introduced on 4th February 2004, the LRS was implemented as a liberalization measure to facilitate the remittance of funds abroad for permitted current or capital account transactions, or a combination of both. Under the scheme, resident individuals were allowed to remit up to USD 2,50,000 or its equivalent per financial year for such transactions.

Permitted Transactions under the LRS:

The LRS permits a wide range of capital and current account transactions for resident individuals. Capital account transactions include opening foreign currency accounts abroad, purchasing property, making investments, and providing loans to non-resident Indian relatives. Current account transactions cover private visits, gifting, employment abroad, emigration, maintenance of close relatives abroad, business trips, medical treatment, and educational expenses.

Revised LRS and Tax Collection at Source (TCS):

In the recent Union Budget 2023, revisions were made to the Direct Tax provisions regarding foreign outward remittances under the LRS. Starting from 1st July 2023, a Tax Collection at Source (TCS) will be applicable for remittances under the LRS, excluding education and medical purposes. The revised TCS rate will be 20%, replacing the previous rate of 5% for remittances above INR 7 lakhs. This means that when individuals send money abroad, the seller may collect this tax from them.

Different TCS Rates for Various Purposes:

It is crucial to note that different TCS rates apply based on the purpose of remittance. For education purposes, the TCS rate remains at 0.5% for education loans from financial institutions and 5% for other educational remittances. However most of the capital account transactions such as investment in share capital, buying of properties etc the TCS rate will be 20% without any threshold limit, as opposed to the previous rate of 5%.

Exclusions and Clarifications:

To address procedural concerns, small transactions made using international debit or credit cards by individuals, up to Rs 7 lakh per financial year, will be excluded from the LRS limits and will not attract any TCS as per the press release of MoF dated 19th May 2023.

LRS Applicability and Overseas Investment:

It is important to note that the LRS scheme is available only to individuals and not to entities such as corporates, partnership firms, LLPs, or HUFs. Therefore, if individuals plan to expand business operations outside India, it is advisable to establish an entity in India and consider Overseas Direct Investment regulations, which allow investments of up to 400% of the entity's net worth.

Consultation with Professionals:

Given the complexities and potential implications of the revised LRS, it is highly recommended that individuals consult with qualified tax advisors or legal professionals to gain a comprehensive understanding of the revised scheme and its impact on their specific circumstances. These professionals will be able to provide personalized guidance based on the latest regulations and any recent updates or changes to the LRS scheme.

Conclusion:

The revised Liberalised Remittance Scheme (LRS) introduces significant changes to the taxation of foreign outward remittances for resident individuals in India. The implementation of the Tax Collection at Source (TCS) at a rate of 20% for most remittance purposes represents a substantial shift from the previous 5% rate. Understanding these revisions is crucial for individuals engaging in international transactions and seeking to remit funds abroad. By seeking professional advice and staying informed about the latest regulations, individuals can navigate the revised LRS effectively and ensure compliance with tax obligations