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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:

Definition of Remittance In 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.

Aim Simplify the process of remitting money outside India and encourage foreign investments by Indian individuals
Permissible Transactions Education, travel, medical treatment, gifting, investment in shares or property, etc.
Non-Permissible Transactions Trading in foreign exchange or buying lottery tickets
Ineligible Entities Corporations, partnership firms, Hindu Undivided Family (HUF), Trusts, etc.
Benefits Diversify investments and assets, finance foreign education or travel
Issues Outward remittances may pressure Forex reserves
Repatriation Directive In 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.