Liberalised Remittance Scheme Explained: USD 250,000 Limit, TCS and Permitted Uses

The Liberalised Remittance Scheme lets people living in India move money abroad without asking the Reserve Bank of India for each transfer. It matters to Indian-Americans because their parents and relatives in Pune, Chennai or Ahmedabad often use it to send tuition, down payments, gifts and investments to the United States. Under the scheme, every resident individual, including a minor, may remit up to USD 250,000 per financial year (April to March) for any permitted current or capital account transaction, or a mix of both. NRIs are not residents, so they use other routes; see NRE, NRO and FCNR accounts.

What is the Liberalised Remittance Scheme?

RBI's FAQ explains that the Foreign Exchange Management Act, 1999 classifies foreign exchange transactions as current account or capital account. Residents may freely buy foreign exchange for current account transactions unless the central government has prohibited it. The scheme began on February 4, 2004 with a limit of USD 25,000 and has been raised in stages to USD 250,000 per financial year. Since the limit applies per person, a family of four residents may each use their own limit, subject to the rules on consolidation described below.

Who can use it, and who cannot?

Resident individuals can use it, including minors, whose declaration is countersigned by a natural guardian. It is not available to corporates, partnership firms, HUFs or trusts. A sole proprietor has no separate limit: if the owner remits USD 250,000 personally, the proprietorship cannot remit another USD 250,000. A person who is an NRI, an OCI cardholder or any other non-resident is outside the scheme and relies on account rules and repatriation limits. When an NRI returns and becomes a resident under FEMA, the scheme starts to apply. Our FEMA and tax residency guide explains the two tests.

What can the money be used for?

Under RBI's list, resident individuals may use the facility for private visits abroad (except Nepal and Bhutan), employment abroad, maintenance of close relatives abroad, business trips, conferences or training, medical treatment and checkups abroad, and any other current account transaction not otherwise restricted. Other permitted uses include gifts to relatives, investment abroad and buying immovable property outside India. RBI's property FAQ confirms that a resident individual can send remittances under the scheme to purchase property outside India and that relatives resident in India can consolidate remittances for a joint purchase.

The scheme cannot be used for:

• Purposes prohibited or restricted under the Current Account Transactions Rules, such as lottery tickets and proscribed magazines
• Margins or margin calls to overseas exchanges or counterparties
• Buying foreign currency convertible bonds of Indian companies in the overseas secondary market
• Trading in foreign exchange abroad
• Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force as non-cooperative
• A resident gifting foreign currency to another resident for credit to the second person's foreign account

How to send money under the scheme

1. Pick the purpose and confirm it is permitted. The bank relies on your declaration, but RBI says the responsibility to comply with FEMA remains yours.
2. Choose the bank branch. For capital account remittances you designate a branch of an authorised dealer, and RBI's FAQ says the account should have been maintained with that bank for at least one year. A new bank customer faces extra source-of-funds checks.
3. Submit PAN and Form A2. PAN is mandatory for all LRS transactions through authorised persons. Form A2 states the purpose and declares that the money is yours and will not be used for prohibited purposes.
4. Provide source of funds. The bank may ask for bank statements, a tax return or an assessment order.
5. Pay any TCS. The bank collects it above the threshold.
6. Remit in any freely convertible currency. The remittance does not have to be in dollars.
7. Keep records. If you hold assets abroad afterwards, they are reportable in Schedule FA. See Schedule FA and the Black Money Act.

There is no limit on how often you remit, but the total from all sources in India in the year cannot exceed USD 250,000. Once the limit is used, RBI says you cannot make further remittances under the scheme in that year, even if the investment proceeds are later brought back.

How does the family limit work?

Family members can consolidate remittances so long as each family member meets the scheme's conditions. RBI does not permit one member to bundle capital account transactions such as opening a foreign bank account or an investment for another person unless that person is a co-owner or co-partner of the account or investment. A parent in Chennai cannot simply use a spouse's unused limit to fund the child's separate brokerage account.

How does TCS apply from April 1, 2026?

Section 394 of the Income-tax Act, 2025 (as amended by the Finance Act, 2026) lets the authorised dealer collect tax at source on remittances that exceed ₹10 lakh in the year. The Finance Act 2026 cut the education and medical rate and left the rate for other purposes alone.

TCS is not collected on education remittances funded by a loan from a financial institution, nor where tax was already deducted at source on the same payment under another provision. TCS is a prepayment: the remitter claims it as credit in the Indian return. It appears in AIS and Form 26AS; see the portal and AIS guide.

What if the money is a gift to a child in the United States?

A resident parent can gift foreign exchange to an adult child abroad within the USD 250,000 limit. A resident can also gift rupees to an NRI or PIO relative within the limits of the scheme, and RBI allows these rupee gifts to be credited to the recipient's NRO account. In India, a gift from a relative is not taxed in the recipient's hands; the definition of relative and the exemption are in gifts and inheritance in India. The recipient's U.S. rules matter more, as explained below.

A worked example

Rajesh is a resident of Ahmedabad. In April 2026 he sends USD 60,000 for his daughter's tuition at a university in Illinois. In November he sends USD 150,000 as a gift towards a home in Naperville. The total is USD 210,000, which leaves USD 40,000 of his limit for the year. A February remittance of USD 60,000 would exceed it and the bank would refuse. Because his remittances in the year are above ₹10 lakh, the bank collects TCS: at 2% on the tuition and 20% on the gift, under the rates in section 394. The bank gives the exact amount on each transfer, and Rajesh claims the credit in his Indian return. His daughter reports the gift on the U.S. side, as set out below.

Mistakes to avoid

• Assuming the limit resets by purpose. All uses share one USD 250,000 limit.
• Using an NRI relative's name for a remittance only a resident can make.
• Not retaining the Form A2 and the bank advice that prove the source and the purpose.
• Forgetting to disclose foreign assets purchased with LRS money in the Indian return.
• Leaving unspent foreign exchange abroad past the 180-day surrender window unless it is reinvested.

U.S. side

The U.S. recipient does not pay income tax on a gift, but a U.S. person who receives more than $100,000 in a year as gifts from a nonresident alien individual or foreign estate (aggregating related donors) must report it on Form 3520. See Forms 3520 and 3520-A, India-US remittances, gifts and LRS and US-India estate and succession planning. Failure to report can bring penalties, so keep the bank advice and Form A2 copies.

How we can help

Aurora-area families who send or receive money under the scheme can use our CPA firm to help the U.S. recipient document and report gifts, track basis and interest, and plan the U.S. side, coordinating with the family's Indian CA, who manages the remittance, TCS and Indian return. We do not file Indian returns or handle the bank's LRS declaration. See cross-border tax for India, Canada and USA and foreign account and asset reporting. The India hub has the related guides.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.