This article delves into the revised LRS scheme and highlights the key updates and clarifications that can empower Indian residents to explore global opportunities.

1. In a move to bolster the financial independence of Indian residents, the Liberalized Remittance
Scheme (LRS) has undergone significant changes and received much-needed clarification.
The LRS, launched by the Reserve Bank of India, allows individuals to transfer money abroad for
travel, education, and investments.
The recent amendments aim to streamline and enhance the scope of the scheme, providing
greater flexibility and convenience to individuals seeking to expand their financial horizons
beyond national borders.
This article delves into the revised LRS scheme and highlights the key updates and clarifications
that can empower Indian residents to explore global opportunities.
How and Why Credit Card Come under LRS
Credit cards are subject to the Liberalized Remittance Scheme due to the nature of their usage
and associated financial transactions. LRS is a regulatory framework established by the Reserve
Bank of India (RBI) that governs the movement of funds outside of India.
Since credit cards enable individuals to make international transactions and potentially transfer
funds abroad, they fall within the purview of LRS regulations. By including credit cards under
LRS, the RBI aims to monitor and regulate cross-border financial flows to ensure compliance
with foreign exchange management laws and maintain economic stability.

2. Changes in the Taxation of Outbound Remittances
The Hon'ble Finance Minister has in the recent finance budget has amended the applicable rate
of Tax Collection at Source (TCS) on transactions covered under theLiberalized Remittance
Scheme (LRS) foreign remittances.
The changes announced in the budget 2023 are applicable from July 01, 2023, I.e. the tax rate
on foreign remittances will surge from 5% to 20% of the transaction amount. This increase aims
to specifically target affluent individuals who have been known to evade taxes, thereby
promoting a more equitable tax system.
Although exceptions exist for educational and medical expenses, the new tax rate will apply to
funds exceeding INR 700,000 per financial year, including those intended for vacations,
investments, and gifts.
Here is the table summarizing the revised tax rates for outbound remittances starting July 1,
2023:
Type of Remittance Current Rate of TCS Proposed Rate of
TCS
For the purpose of education
(education loan from any
financial institution)
0.5% of the amount or the
aggregate of the amounts in
excess of Rs 7 Lakh
No Change

3. For the purpose of education
(education loan from other
financial institution)
5% of the amount or the
aggregate of the amounts in
excess of Rs. 7 Lakh
No Change
Remittance is for Medical
Treatment
5% of the amount or the
aggregate of the amounts in
excess of Rs. 7 Lakh
No Change
Overseas Tour Package 5% without any threshold
limit
20% without any
threshold limit
Any other case 5% of the amount or the
aggregate of the amounts in
excess of Rs. 7 Lakh
20% without
threshold
Exemptions to the Tax Increase
Following public backlash and concerns surrounding the implementation of a 20% Tax
Collection at Source (TCS) on credit card spending outside India, the Ministry of Finance has
provided clarification.

4. In a statement issued on May 19, 2023, the ministry addressed concerns about the applicability
of TCS to small transactions under the Liberalized Remittance Scheme (LRS) from July 1, 2023.
It was announced that payments made with foreign debit or credit cards up to Rs 7 lakh per
financial year would not count toward the LRS limits and will not be subjected to TCS.
This clarification aims to alleviate procedural ambiguities and ensure smoother transactions for
individuals.
Impact and Motivation of the Changes
Financial experts see the recent tax increase on outbound remittances to ensure high-net-
worth individuals (HNIs) contribute their fair share before permanently leaving India.
Over the past five years, about 30,000 to 35,000 HNIs have moved to places like the US, UK,
UAE, Canada, Australia, Singapore, and Europe.
Notably, in 2022 alone, around 8,000 HNIs made the decision to relocate. The tax adjustment
aims to address potential tax evasion concerns associated with such migrations.
LRS Scheme Basics
The Liberalized Remittance Scheme (LRS) is an initiative put in place by the Reserve Bank of
India to make it easier for people living in India to send money to other countries.
Under the LRS, individuals are permitted to remit up to US $250,000 per financial year (April to
March) for various current or capital account transactions or a combination of both, providing
greater flexibility and ease in conducting international transactions.
Under the LRS scheme, residents must give their PAN (Permanent Account Number) for all
transactions done through authorised people.
One important aspect of the LRS scheme is that remittances can be made in any freely
convertible foreign currency, and it is not obligatory for the transactions to be carried out
specifically in US Dollars.
Prohibited Transactions under LRS
Under the Liberalized Remittance Scheme (LRS), the following types of transactions are
expressly prohibited:

5. ● Transactions that are not permissible under the Foreign Exchange Management Act
1999.
● Remittance for margins or margin calls to overseas exchanges or overseas
counterparties.
● Remittances for any purpose specifically prohibited under Schedule I or any item
restricted under Schedule II of the Foreign Exchange Management (Current Account
Transaction) Rules, 2000.
● Capital account remittances to countries identified by the Financial Action Task Force
(FATF) as non-cooperative countries and territories or as notified by the Reserve Bank of
India (RBI).
● Remittances directly or indirectly to individuals and entities identified as posing a
significant risk of committing acts of terrorism, as separately advised by the RBI to the
banks.
Types of Account Transactions are Allowed Under the LRS
The Liberalized Remittance Scheme (LRS) allows for several current account transactions,
including:
● Private visits (excluding Nepal and Bhutan)
● Gifts or donations
● Emigration
● Overseas business trips
● Medical treatment abroad
● Pursuing studies outside of India
● Going abroad for employment
● Maintenance of close relatives abroad
Under the LRS, it is important to remember that the total amount of current account transfers
that are allowed is capped at $250,000.

6. Summing Up
The Liberalized Remittance Scheme (LRS) serves as a vital framework introduced by the Reserve
Bank of India to enable resident individuals to transfer funds abroad for various permissible
current account transactions.
While the LRS facilitates a wide range of transactions, adhering to the prescribed limits and
guidelines is important. The proposed implementation of a 20% Tax Collection at Source (TCS)
on LRS transactions, effective from July 1, 2023, is expected to significantly impact the
economy. The full extent of its consequences will be realized once it comes into effect.
Therefore, individuals falling under the categories mentioned earlier should ensure compliance
with the new regulations and fulfill their tax obligations accordingly. Stay informed and
prepared for these forthcoming changes to navigate the LRS framework effectively.
Source: https://www.manishanilgupta.com/blog-details/exploring-the-updated-lrs-scheme-
and-key-clarifications