What’s the News?

Twenty per cent tax on Liberalised Remittances Scheme (LRS) of the Reserve Bank of India is set to kick off soon.

What is the Liberalised Remittances Scheme (LRS)?

• The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure.
• According to the prevailing regulations, resident individuals may remit up to $250,000 per financial year
• The scheme was and has been periodically introduced in 2004 reviewed and revised by the RBI.

Eligibility for LRS

• LRS is open to everyone including non-residents, NRIs, persons of Indian origin (PIOs), foreign citizens with PIO status and foreign nationals of Indian origin.
• The Scheme is NOT available to corporations, partnership firms, Hindu Undivided Family (HUF), Trusts etc

Benefits

• This money can be used to pay expenses related to travelling (private or for business), and medical treatment, studying, gifts and so on. donations, maintenance of close relatives
• It can also be and be used invested in shares, debt instruments,to . buy immovable properties in overseas market
• Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme

Restrictions under LRS

• Under LRS, on remittances cannot be used for trading foreign exchange markets, purchase of Foreign Currency Convertible Bonds issued abroad by Indian companies and margin or margin calls to overseas exchanges and counterparties.
• Similarly, individuals are not allowed to send money to countries by Financial Action identified as ‘non cooperative jurisdictions’ Task Force (FAFT).
• It also prohibits remittances to entities identified as posing terrorist risks.

NOTE-

• The Union Budget 2023 introduced a Tax Collection at Source (TCS) for outward foreign remittance under LRS (other than for Education and medical purpose) of 20% on the entire value.
• If any profit is made on foreign investments made under LRS, it is taxable in India based on how long the investment was held.