LRS Explained: How Resident Indians Can Remit USD 250,000 a Year Under RBI's Scheme

The single most common misconception among Indians abroad is that the Liberalised Remittance Scheme (LRS) is their window to move money out of India. It is not. The LRS, notified by the Reserve Bank of India under Section 6 of the Foreign Exchange Management Act, 1999, is available only to resident individuals, who may remit up to USD 250,000 per financial year (April to March). A Non-Resident Indian cannot open an LRS window at all, because an NRI's rupee funds already sit in accounts (NRO, NRE, FCNR) that carry their own, separate repatriation rules.

That distinction matters because most NRIs meet the LRS from the receiving side: a resident parent funding a child's tuition in the United States, a resident sibling gifting into an NRI's account, or a resident spouse maintaining a relative abroad. This article maps the scheme end to end, from the FEMA architecture to the tax that bites on both sides of the wire, and shows where the NRI's own USD 1 million route picks up where the resident's LRS leaves off.

FEMA / DTAA Position

The LRS was introduced on 4 February 2004 with a modest ceiling of USD 25,000 per person per year, and the limit was raised in stages to the current USD 250,000. The scheme flows from Section 6 of FEMA, 1999, which forbids capital-account transactions unless the RBI specifically permits them; the permissible current and capital account purposes are listed in Schedule III of the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The RBI's own LRS FAQ (rbi.org.in) confirms that all resident individuals, including minors, may use the facility, though a minor's LRS declaration form must be countersigned by a natural guardian, and quoting a Permanent Account Number is mandatory for every LRS transaction.

The USD 250,000 is an annual aggregate across every permitted purpose, not a per-transaction cap. The RBI FAQ lists the eight broad heads a resident may remit under, against a hard list of prohibitions. The table below reproduces that split verbatim from the scheme text.

Where the recipient is an NRI relative, the RBI FAQ is explicit that a rupee loan or gift from a resident must be credited to the beneficiary's Non-Resident Ordinary (NRO) account and not to an NRE or FCNR account. That single instruction is what folds the resident's LRS into the NRI's world, and it dictates the tax and repatriation treatment discussed below. The scheme's relationship to India's tax treaties, or DTAA network, is indirect: LRS governs whether money may leave India, while the DTAA governs how the income it later earns abroad, or the income it was drawn from in India, is split between two tax authorities.

Tax Treatment in India

An LRS remittance is not, by itself, a taxable event. The resident is moving already-taxed income or capital out of the country, so no fresh income tax arises on the act of remitting. What does arise is Tax Collected at Source (TCS) under Section 206C(1G) of the Income-tax Act, 1961, a collection mechanism, not a final tax. The Finance Act 2025 recalibrated it from 1 April 2025, raising the annual threshold at which TCS begins from Rs 7 lakh to Rs 10 lakh per financial year and removing TCS entirely on education remittances funded by a loan from a specified financial institution (incometax.gov.in). The current structure is set out below.

TCS is not a cost. It is creditable against the remitter's income-tax liability for the year, or refundable if excess, exactly like TDS. A resident parent remitting Rs 40 lakh in a year for a child's tuition from own funds would face 5% TCS on Rs 30 lakh, that is Rs 1.5 lakh, which is then adjusted in the parent's return.

For the NRI on the receiving end, the tax question is different and turns on Section 56(2)(x) of the Income-tax Act, 1961. A gift received from a "relative" as defined in the section, which includes parents, siblings and spouse, is exempt without any monetary ceiling; a gift from a non-relative is taxable in the NRI's hands once aggregate gifts in the year cross Rs 50,000. Any income the NRI subsequently earns on those funds inside India, such as interest on an NRO balance, is taxable at slab rates with TDS deducted at 30% plus surcharge and 4% cess. Surcharge on such income runs at 10% between Rs 50 lakh and Rs 1 crore, 15% from Rs 1 crore to Rs 2 crore, and 25% above Rs 2 crore, with the new-regime surcharge capped at 25% even beyond Rs 5 crore. NRIs can model the resulting liability with the NRI income-tax calculator and, where the money funds an Indian let-out property, the NRI rental-income calculator.

Tax Treatment Abroad

Once LRS money lands abroad, the destination country's tax code takes over, and the interaction is governed by the relevant DTAA. Take the United States, home to the largest slice of the Indian diaspora: the India-US treaty has been in force since 12 September 1991, and Article 24 gives the foreign tax credit in the country of residence. The headline treaty rates that matter to a US-resident NRI drawing Indian-source income are below.

Two cautions follow directly from the treaty text. First, dividends are taxed at 15% only where the recipient holds at least 10% of the paying company's voting stock; ordinary portfolio investors face the full 25%. Second, and critically, India does not surrender its right to tax capital gains: the DTAA does not make them "exempt", and gains on Indian assets remain taxable in India at 12.5% for long-term equity and property. A US-resident NRI reports the same income to the IRS and claims a credit for the Indian tax paid, avoiding double taxation but not escaping tax altogether. The mechanics of that credit, including Form 67, are covered in our note on claiming foreign tax credit.

Where the LRS money is a gift from a resident relative rather than income, most jurisdictions do not tax the receipt itself, but the income it later generates abroad is fully taxable in the country of residence and must be reported. US persons additionally file Form 3520 for large foreign gifts, and the reporting obligation is independent of whether any tax is due. Whether a person is even an NRI for a given year is a separate day-count question governed by Section 6 of the Income-tax Act, covered in our explainer on residential status.

Repatriation Mechanics

Here the resident's LRS and the NRI's own toolkit sit side by side, and confusing them is the most expensive mistake in this area. A resident using LRS must, per the RBI FAQ, repatriate and surrender any unused foreign exchange to an authorised person within 180 days unless it is reinvested; income earned on LRS investments abroad may, however, be retained and reinvested without being brought back.

An NRI cannot use LRS at all, and instead repatriates through the account structure built for non-residents. The three vehicles behave very differently, as the deposit-type governs both repatriability and Indian tax.

The NRO route is the mirror image of LRS: an NRI may remit up to USD 1 million per financial year out of NRO balances, made up of current income and the sale proceeds of assets, subject to payment of applicable Indian taxes. The bank requires a chartered accountant's certificate in Form 15CB and the remitter's Form 15CA before the wire moves. This is exactly where a resident's LRS gift, credited to the NRI's NRO account, re-enters the NRI's own USD 1 million ceiling for any onward repatriation. Model the drawdown and the tax drag with the NRI repatriation calculator before instructing the bank. NRE and FCNR balances, by contrast, are freely repatriable without the USD 1 million cap, which is why NRIs route genuinely foreign earnings there rather than into NRO. For a fuller account of who qualifies to hold these accounts, see our explainer on OCI cardholder status.

FAQ

Can an NRI use the Liberalised Remittance Scheme?

No. The LRS under Section 6 of FEMA, 1999 is confined to resident individuals, and the RBI FAQ (rbi.org.in) makes clear it covers "all resident individuals, including minors". An NRI who wishes to move money out of India uses the NRO route (up to USD 1 million per financial year) or the freely repatriable NRE and FCNR accounts instead.

How much can a resident remit to an NRI relative each year?

A resident individual may remit up to the LRS aggregate of USD 250,000 per financial year across all permitted purposes, including gifts and maintenance of relatives abroad. Where the beneficiary is an NRI relative, the RBI requires the amount to be credited to the NRI's NRO account rather than an NRE or FCNR account.

Is TCS on an LRS remittance an extra tax I lose?

No. The TCS under Section 206C(1G), levied at up to 20% above the Rs 10 lakh annual threshold from 1 April 2025, is collected at source but is fully creditable against your income-tax liability for the year, or refundable if it exceeds your final tax. It is a cash-flow timing cost, not a permanent one.

Does a gift from my resident parents get taxed in my hands as an NRI?

A gift from a "relative" as defined in Section 56(2)(x) of the Income-tax Act, 1961, which includes parents, is exempt in India with no upper limit. Gifts from non-relatives become taxable once they exceed Rs 50,000 in aggregate in a financial year. Any income you then earn on the gifted funds inside India remains taxable at slab rates.

Are capital gains on my Indian shares "exempt" under the DTAA if I live in the US?

No. India retains the right to tax capital gains on Indian assets; the India-US DTAA, in force since 12 September 1991, does not exempt them. Long-term gains are taxed in India at 12.5%, and you then claim a foreign tax credit in your country of residence under Article 24 to avoid being taxed twice.

What is the difference between the resident's USD 250,000 and the NRI's USD 1 million limit?

The USD 250,000 is the resident LRS ceiling for sending money out of India for permitted purposes. The USD 1 million is the separate FEMA limit within which an NRI may repatriate balances from an NRO account per financial year after paying Indian tax. They are two different windows for two different tax statuses; an individual uses one or the other depending on their residential status for the year.

Do NRE and FCNR balances count against the USD 1 million cap?

No. The USD 1 million per financial year ceiling applies only to NRO balances, which hold Indian-source income. NRE and FCNR accounts are fully repatriable without that limit, and the interest on both is exempt from Indian income tax, which is the core reason NRIs keep genuinely foreign funds in those accounts.