 "RBI, Reserve Bank of India")
The Reserve Bank of India’s (RBI’s) move to review the Liberalised Remittance Scheme (LRS) framework is meant to align it with the wider economic and geopolitical conditions, experts said.
In the annual report, released on Thursday, RBI said it has initiated a comprehensive framework and is examining various aspects including the annual remittance limit, permissible purposes, transaction modes, and currency options.
The LRS scheme was introduced in 2004 allowing all resident individuals to remit up to $25,000 per financial year for any permissible current or capital account transaction or a combination of both free of charge.
This was gradually revised to $2,50,000 on May 26, 2015.
“Given the current dynamic economic environment, evolving capital flows, and the emergence of new-age transactions, such as investments in digital assets and international platforms, there is a clear need to relook at the LRS framework. Additionally, with remittances now linked to PAN, there may be a broader policy push to align LRS usage with income tax compliance, ensuring that outward remittances reflect an individual’s financial profile and tax status. A review can also help address concerns around sensitive sectors and potential misuse,” said Moin Ladha, Partner at Khaitan & Co.
According to the recent data, India’s outward remittances under the Liberalised Remittance Scheme (LRS) moderated by 6.85 per cent year-on-year (YoY) to $29.56 billion in FY25, after rising to an all-time high of $31.73 billion in FY24.
In its annual report, RBI said that it has eased procedures and expanded the scope of the LRS in FY25, with an aim to improve convenience and accessibility for resident individuals. From July 3, 2024, authorised dealers (ADs), were also allowed to facilitate remittances on the basis of online or physical submission of Form A2 subject to Section 10(5) of FEMA 1999 irrespective of the value of transaction.
Also, resident individuals were permitted to send funds under LRS to International Financial Services Centres (IFSCs) for any permissible current or capital account transaction effective from July 10, 2024, RBI said.
Individuals were also allowed to use funds held in their IFSC-based foreign currency accounts to make transactions in other foreign jurisdictions. Previously, LRS remittances to IFSCs were only allowed for investment in securities. This was expanded on June 22, 2023, to include payments of education fees to foreign universities operating in IFSCs.
“Amid the growing educational inflation abroad and broader inflation, there is a need to re-look at the LRS limits. The review is a part of periodic assessment and the RBI keeping in sync with the changing realities,” another expert said.
Furthermore, RBI said that it has also discontinued the requirement for monthly LRS return filings by banks from September 6, 2024.
