FEMA Liberalised Remittance Scheme: USD 250K Per FY With TCS Rules For Overseas Transfers

The Liberalised Remittance Scheme (LRS) is the single most misunderstood pipe in cross-border money movement for Indian families, and the confusion almost always starts with who it actually serves. Under the Foreign Exchange Management Act, 1999 (FEMA), Section 6, the Reserve Bank of India permits every resident individual to remit up to USD 250,000 per financial year for a defined set of current and capital account transactions. That headline figure has not changed since the limit was restored to USD 250,000 on 26 May 2015, yet the tax wrapper around it has shifted repeatedly since October 2023.

The first thing an NRI must internalise is that LRS is not their scheme. The USD 250,000 window belongs to resident individuals only — the parents in Pune funding a child's masters in the United States, the resident sibling gifting wedding money to a brother in New Jersey, or the returning NRI who has regained resident status. NRIs themselves move money home and out through an entirely separate FEMA channel built on NRO, NRE and FCNR accounts, governed by the Foreign Exchange Management (Remittance of Assets) Regulations. This article maps both halves so a cross-border family can see exactly which lever applies, and what Tax Collected at Source (TCS) under Section 206C(1G) of the Income Tax Act, 1961 will cost them along the way.

FEMA / DTAA Position

FEMA Section 6 is the gatekeeper for capital account transactions. The default rule is that a resident needs explicit RBI permission to move capital abroad, unless the transaction sits inside a permitted window. LRS is precisely that window: a standing general permission of USD 250,000 per financial year per resident individual, including minors, available for both current account purposes (education, medical treatment, travel, maintenance of relatives, gifts) and capital account purposes (overseas equity, debt instruments, immovable property and loans). The statutory text of FEMA, 1999 is hosted on indiacode.nic.in, and the operative procedural detail sits in the RBI Master Direction on LRS, last updated and accessible at rbi.org.in.

Two procedural conditions are non-negotiable. A Permanent Account Number (PAN) is mandatory for every LRS remittance, and the remitter must submit a Form A2 declaration to the Authorised Dealer (AD) bank confirming the purpose and that the cumulative outflow for the financial year stays within USD 250,000. The USD 250,000 ceiling is per individual, which is why a resident family of four can lawfully move up to USD 1 million in a single financial year through four separate LRS limits — a point our LRS glossary entry and the FEMA glossary entry both flag.

Where does the Double Taxation Avoidance Agreement (DTAA) enter? It enters on the receiving side. When LRS funds land with an NRI in a treaty country, or when an NRI's own Indian-source income is being computed, the relevant DTAA decides which country taxes what and at what rate. For the India-United States treaty, in force since 12 September 1991, Article 24 grants a foreign tax credit in the country of residence, while the substantive rates cap interest and portfolio dividends at 15% and long-term capital gains at 12.5%. Critically, India retains its taxing right on capital gains at 12.5% — no DTAA, including the US treaty, makes Indian capital gains "exempt". You claim these benefits only with a valid Tax Residency Certificate, as our DTAA glossary entry explains.

Tax Treatment in India

The cost that surprises most remitters is TCS under Section 206C(1G), introduced for foreign remittances from 1 October 2020 and recalibrated with effect from 1 October 2023. TCS is collected by the AD bank at the point of remittance and is creditable against the remitter's total tax liability when filing the income tax return, so it is a cash-flow drag rather than a final tax. The Income Tax Department's portal at incometax.gov.in carries the Section 206C(1G) provisions and the relevant TCS return forms.

The tiers turn on a Rs 7 lakh aggregate threshold per financial year, applied across all LRS remittances by the same individual:

To make the threshold mechanics concrete: a resident parent remitting Rs 25 lakh for a child's overseas degree pays 5% TCS only on the Rs 18 lakh above the Rs 7 lakh floor, which is Rs 90,000 — fully recoverable on filing the return. Contrast a Rs 25 lakh remittance to buy foreign shares: the same Rs 18 lakh excess attracts 20% TCS, or Rs 3.6 lakh blocked until the refund cycle. Our TCS glossary entry walks through this education example in detail, and you can model the net outflow on the NRI repatriation calculator.

For the NRI on the receiving end of a resident's LRS gift, the Indian tax position is governed by Section 56(2)(x). A gift from a resident "relative" as defined in the Act is fully exempt in the NRI recipient's hands with no monetary ceiling, while a gift from a non-relative is taxable in India once it crosses Rs 50,000 in a financial year. Where the NRI earns Indian-source income — rent, interest or dividends — TDS applies under Section 195, and any surcharge is now capped at 25% in the new tax regime even at the highest income band, with a 4% health and education cess on top. NRIs computing their slab liability can use the NRI income tax calculator, and landlords should run figures through the rental income tax calculator.

Tax Treatment Abroad

The mirror-image question is what happens to the money once it crosses the border, and here the DTAA does the heavy lifting through its foreign tax credit mechanism. Under Article 24 of the India-US treaty (in force from 12 September 1991), tax paid in India on a category of income is creditable against the US tax otherwise due on that same income, preventing double taxation. The treaty's substantive ceilings, sourced from the verified India-US DTAA schedule, are set out below:

A practical consequence follows for the resident who uses LRS to invest abroad. The 20% TCS deducted in India on a foreign-equity remittance above Rs 7 lakh is an Indian prepaid tax, recoverable only against Indian liability — it is not creditable abroad, because no foreign income has yet arisen at the point of remittance. By contrast, when the offshore investment later throws off dividends or gains taxable in the foreign jurisdiction, the DTAA's Article 24 credit governs, and the foreign tax credit calculator helps quantify the relief. For pure transfers — a resident relative gifting LRS funds to an NRI — the remittance is generally not "income" in the recipient's residence country, though local reporting obligations on receipt of foreign gifts can still apply and should be checked with a local adviser rather than assumed away.

Repatriation Mechanics

For NRIs, the operative framework is not LRS at all but the three-account architecture under the FEMA (Remittance of Assets) Regulations. The distinction between freely repatriable and limit-bound balances is the single most important planning lever, summarised here:

NRE and FCNR(B) balances are the clean route: both principal and interest move out without any rupee ceiling, and the interest is exempt from Indian tax for as long as the holder remains an NRI. The NRO account is where Indian-source income accumulates, and repatriation from it is capped at USD 1 million per financial year under the RBI Master Direction on Remittance of Assets, available at rbi.org.in. Crucially, NRO repatriation requires a chartered accountant's certification on Form 15CB and the remitter's Form 15CA filing, confirming that applicable taxes have been deducted before the funds leave. The NRO to NRE transfer calculator and the repatriation calculator model both the USD 1 million ceiling and the TDS leakage.

The contrast crystallises the article's central point. A resident uses LRS to push USD 250,000 per financial year out of India after paying TCS under Section 206C(1G). An NRI uses the NRO route to pull up to USD 1 million per financial year out of accumulated Indian income after settling Section 195 TDS, while NRE and FCNR(B) balances flow out without limit. Mixing the two — for instance, assuming an NRI can tap a USD 250,000 LRS limit — is the most common and costly error our FEMA advisory desk corrects.

FAQ

Can an NRI use the USD 250,000 LRS limit?

No. LRS under FEMA Section 6 is available only to resident individuals. An NRI's outward remittances are governed instead by the FEMA (Remittance of Assets) Regulations, which permit up to USD 1 million per financial year from an NRO account and unlimited repatriation from NRE and FCNR(B) balances. A returning NRI regains LRS eligibility only once they qualify as a resident under FEMA.

How much TCS will a Rs 20 lakh foreign-equity remittance attract?

Under Section 206C(1G), foreign-equity remittances above the Rs 7 lakh annual threshold attract 20% TCS. On Rs 20 lakh, the taxable excess is Rs 13 lakh, so TCS is Rs 2.6 lakh. This amount is creditable against your total tax liability when you file your return, so it is recoverable rather than a final cost.

Is a gift from my resident parent in India taxable for me as an NRI in the US?

In India, a gift from a "relative" as defined under Section 56(2)(x) is fully exempt with no ceiling, so a parent's gift attracts no Indian tax in your hands. The Indian remittance itself is not income, but the United States imposes its own reporting requirements on large foreign gifts, so confirm your filing position with a US tax adviser.

Does the India-US DTAA make my Indian capital gains exempt?

No. India retains its taxing right on capital gains, and the India-US treaty caps long-term capital gains at 12.5% rather than exempting them. You then claim a foreign tax credit under Article 24 of the treaty (in force since 12 September 1991) against the US tax on the same gain, with a valid Tax Residency Certificate.

What documents does NRO repatriation require?

Repatriation from an NRO account up to the USD 1 million per financial year limit requires a chartered accountant's Form 15CB certificate confirming that applicable taxes have been paid, plus the remitter's Form 15CA filing on the income tax portal. The bank will not release the funds without both.

Is NRE interest taxable in India?

No. Interest earned on NRE and FCNR(B) deposits is exempt from Indian income tax for as long as the account holder remains an NRI. Interest and other income credited to an NRO account, by contrast, is fully taxable and subject to TDS under Section 195.

Do I pay TCS on money I send to my child studying in the US?

Self-funded education remittances above Rs 7 lakh per financial year attract 5% TCS under Section 206C(1G), not the 20% rate that applies to investment or general remittances. A Rs 25 lakh education remittance therefore carries Rs 90,000 of TCS on the Rs 18 lakh excess, fully creditable when you file your return.