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Liberalized Remittance Scheme (LRS)

Facts for Prelims (FFP)

Source: TH

 Context: Finance Ministry has announced that it will waive the 20% tax on overseas credit card spending for individuals up to ₹7 lakh per financial year, following criticism and concerns raised by taxpayers and businesses.

 

What is the issue?

The Reserve Bank of India had introduced a provision to capture overseas credit card spending under the LRS, which allows individuals to remit forex up to $2.5 lakhs annually.

 

However, the government’s plan to impose a 20% tax on such spending faced backlash, leading to its current decision to exempt spending up to ₹7 lakh and the continuation of beneficial treatment for education and health payments, under the LRS.

 

About the LRS Scheme:

Description
Definition of RemittanceIn the context of the Liberalized Remittance Scheme (LRS), remittance refers to the transfer of foreign exchange (forex) by resident individuals in India for various purposes.
About the scheme The LRS sets the limit on the amount of money that can be remitted by individuals without requiring specific approvals from regulatory authorities.

 

Under LRS (introduced in 2004), Indian individuals can send money outside up to a maximum of $250,000 in a year.

AimSimplify the process of remitting money outside India and encourage foreign investments by Indian individuals
Permissible TransactionsEducation, travel, medical treatment, gifting, investment in shares or property, etc.
Non-Permissible TransactionsTrading in foreign exchange or buying lottery tickets
Ineligible EntitiesCorporations, partnership firms, Hindu Undivided Family (HUF), Trusts, etc.
BenefitsDiversify investments and assets, finance foreign education or travel
IssuesOutward remittances may pressure Forex reserves
Repatriation DirectiveIn August 2022, RBI had directed that any money remitted overseas by Indian residents that remains unutilised for more than 180 days needs to be repatriated back into India.