Liberalised Remittance Scheme: the USD 250,000 per year limit and what NRIs and residents can actually do with it

Ask any resident Indian how much money they can legally send abroad in a year and the number that comes back is almost always the same: USD 250,000. That figure comes from the Reserve Bank of India's Liberalised Remittance Scheme (LRS), introduced in 2004 and calibrated to the current ceiling of USD 2,50,000 per financial year (1 April to 31 March). What most people miss is the fine print around who the scheme is for, what it can fund, and how the tax on it works both in India and in the destination country. For NRIs and their resident families, that fine print decides whether an overseas transfer is clean or a FEMA contravention waiting to be flagged.

The single most important distinction is this: LRS is a scheme for resident individuals, not for Non-Resident Indians. An NRI cannot use LRS at all. Instead, an NRI's outward remittance runs through a separate RBI window built around the NRO account and a USD 1 million per financial year ceiling. This article maps both channels and the treaty mechanics that stop the same rupee being taxed twice, using figures from the RBI LRS FAQ, the Income Tax Act 1961, and the relevant tax treaties as they stand in FY 2026-27.

FEMA / DTAA Position

LRS is a creature of the Foreign Exchange Management Act 1999 (FEMA), operationalised through the RBI Master Direction on the Liberalised Remittance Scheme. Under the RBI LRS FAQ, a resident individual - including a minor, in which case the LRS declaration is countersigned by a natural guardian - may remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction, or a combination of both. The USD 2,50,000 ceiling is per person, per financial year; a family of four therefore has a combined headroom of up to USD 10,00,000 (USD 1 million) in a single April-March cycle, provided each individual has an independent source of funds.

The scheme is emphatically not a corporate tool. Under the RBI framework, LRS is available only to resident individuals. It is not available to corporates, partnership firms, Hindu Undivided Families (HUF), or trusts. A Permanent Account Number (PAN) is mandatory for every LRS remittance. Once the USD 2,50,000 limit is exhausted in a financial year, no further remittance is permitted under the scheme that year, even if the earlier remittance was subsequently brought back to India.

The permissible transactions sit under Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules 2000, read with the capital account regulations under FEMA 1999. The table below summarises the eight broad categories the RBI LRS FAQ recognises.

Crucially, LRS is a resident's outbound pipe. The moment an individual becomes a Non-Resident under Section 6 of the Income Tax Act 1961, the LRS route closes and the NRO repatriation route opens. If you are still working out which side of the residency line you fall on, our companion explainer on counting your days right under Section 6 walks through the 182-day and 60/365-day tests. You can also read the plain-language definition in our LRS glossary entry.

The Double Taxation Avoidance Agreement (DTAA) does not govern the remittance itself - FEMA does - but it governs the income generated by an LRS investment once it sits abroad, and the income an NRI earns in India before repatriating it. That interaction is where most NRIs lose money to avoidable double taxation, and it is covered in the two sections that follow.

Tax Treatment in India

There are two distinct tax events to keep apart. First, the tax collected at source when a resident sends money out under LRS. Second, the tax on the income an NRI earns in India before repatriating it out through the NRO route.

On the LRS side, the relevant provision is Section 206C(1G) of the Income Tax Act 1961, which imposes Tax Collected at Source (TCS) on outward foreign remittances. The Finance Act 2025 raised the LRS TCS threshold from Rs 7 lakh to Rs 10 lakh per financial year, effective 1 April 2025. The rates that apply in FY 2026-27 are set out below.

TCS is not a cost. It is a prepaid tax that appears in your Form 26AS and Annual Information Statement (AIS) and is fully adjustable against your total tax liability, with any excess refundable when you file your Income Tax Return. A resident parent remitting Rs 40 lakh for a child's self-funded overseas education would face TCS of 5% on Rs 30 lakh (the amount above the Rs 10 lakh threshold), or Rs 1,50,000 - recoverable in full at ITR stage. You can model the cash-flow hit on our TCS on foreign remittance calculator.

On the NRI side, the income earned in India is taxed under the ordinary charging sections before it can be repatriated. Rental income from Indian property is taxed at slab rates after the standard 30% deduction under Section 24(a); our NRI rental income tax calculator applies the current slabs. For FY 2025-26 and continuing into FY 2026-27, the new tax regime under Section 115BAC offers a Section 87A rebate of up to Rs 60,000 for total income up to Rs 12 lakh, a standard deduction of Rs 75,000, and a surcharge that is capped at 25% in the new regime even for incomes above Rs 5 crore. A health and education cess of 4% applies on tax plus surcharge. Note that most NRIs, with India-source income above the basic exemption, will not benefit from the rebate, which phases out sharply once slab income crosses Rs 12 lakh.

Capital gains deserve a specific warning. Long-term capital gains on listed Indian equity are taxed at 12.5% above the Rs 1.25 lakh annual exemption (Budget 2024, effective 23 July 2024), and short-term gains at 20%. When an NRI sells, the buyer must withhold TDS under Section 195 - and, as we set out in our note on the Section 195 TDS trap for property buyers, that deduction is emphatically not the 1% that applies to resident sellers. Use the NRI income tax calculator to estimate the net-of-TDS position before you agree a sale price.

Tax Treatment Abroad

Once an LRS remittance is invested abroad, the income it throws off - dividends, interest, rent, capital gains - is taxable in the country where the asset sits, subject to that country's domestic law. The reverse is also true: the India-source income an NRI earns is first taxed in India and then, generally, reported again in the country of residence. The DTAA exists precisely to relieve this overlap, chiefly through the foreign tax credit mechanism.

The mechanics vary by treaty, so the rate you actually pay depends on which country you live in. The table below compares the two most common NRI corridors, the United States (treaty effective 12 September 1991) and the United Arab Emirates (treaty effective 22 September 1993), using the rates in force under each agreement.

Two points routinely trip NRIs up. First, capital gains are never "exempt" under these treaties. Under both the India-US and India-UAE agreements, India retains the right to tax gains on Indian assets, and the applicable long-term rate is 12.5%. A UAE resident who assumes zero tax because the UAE levies no personal income tax is mistaken: the India-UAE DTAA expressly makes capital gains on shares of an Indian company taxable in India. Second, the reduced US dividend rate of 15% under Article 10 applies only where the recipient holds at least 10% of the voting stock in a parent-subsidiary relationship; ordinary portfolio investors face 25%.

For the foreign tax credit to work, the NRI must first establish treaty residence. Article 24 of the India-US treaty allows a foreign tax credit in the country of residence, but Indian tax authorities will only apply the treaty rate on the India side if the taxpayer produces a valid Tax Residency Certificate (TRC) and files Form 10F. We walk through that paperwork in our explainer on claiming DTAA relief under Section 90, and the DTAA glossary entry gives the one-paragraph version. Without a TRC, the treaty rate is denied and the full domestic rate applies.

Repatriation Mechanics

This is where the resident and non-resident pipes diverge most sharply, and where account choice determines whether repatriation is automatic or capped.

For a resident using LRS, the flow is straightforward: rupees leave a resident savings account, are converted at the authorised dealer bank, and land abroad, all within the USD 2,50,000 annual ceiling. There is no separate repatriation ceiling because the money was never non-resident in character.

For an NRI, the account architecture does the heavy lifting, and the three account types behave very differently:

The NRE and FCNR(B) accounts are the NRI equivalents of a clean pipe: money that arrives as foreign currency can leave as foreign currency without limit. The definitions for both sit in our NRE account glossary entry and NRO account glossary entry.

The NRO account is the constrained one. Balances built from Indian rent, dividends, or the sale of inherited property can be repatriated only up to USD 1 million per financial year, and only after the income has been taxed and a Chartered Accountant has certified Forms 15CA and 15CB confirming that all Indian taxes have been paid. This USD 1 million window is the NRI's functional analogue to a resident's LRS ceiling - a per-person, per-financial-year cap that resets every 1 April. Our NRI repatriation calculator models the net amount that reaches your overseas account after TDS and conversion costs.

A practical sequencing tip closes the loop. An NRI who has taxed NRO funds and wants them abroad should move them through the USD 1 million NRO route; a resident parent funding the same child's education abroad uses LRS. The two channels never overlap, and mixing them - for instance, an NRI attempting to use a resident relative's LRS limit to move NRO money - is a FEMA contravention that authorised dealer banks are required to report.

FAQ

Can an NRI use the Liberalised Remittance Scheme?

No. Under the RBI LRS FAQ, LRS is available only to resident individuals. An NRI cannot remit under LRS at all. The NRI's outbound route is the USD 1 million per financial year repatriation window on taxed NRO balances, plus the freely repatriable NRE and FCNR(B) accounts. The USD 2,50,000 LRS ceiling is exclusively for residents.

How much can a resident family send abroad under LRS in one year?

Each resident individual, including a minor, has an independent ceiling of USD 2,50,000 per financial year (1 April to 31 March). A family of four therefore has combined headroom of up to USD 10,00,000 (USD 1 million) in a single April-March cycle, provided each person has a genuine independent source of funds and each files a separate PAN-linked LRS declaration.

Is TCS on an LRS remittance a permanent cost?

No. TCS under Section 206C(1G) is a prepaid tax, not a levy. It is reflected in your Form 26AS and AIS and is fully adjustable against your income-tax liability, with any excess refundable at ITR stage. After the Finance Act 2025, TCS applies only above Rs 10 lakh per financial year (effective 1 April 2025), at 20% for most purposes and 5% for self-funded education and medical remittances.

Are my overseas capital gains exempt if I live in a no-tax country like the UAE?

No. The India-UAE DTAA (effective 22 September 1993) expressly makes capital gains on shares of an Indian company taxable in India, and the applicable long-term rate is 12.5%. Capital gains are never "exempt" under India's treaties; India retains the right to tax gains on Indian assets. A UAE Tax Residency Certificate lets you claim the treaty rate, not a zero rate.

What paperwork do I need to claim a lower DTAA rate on Indian income?

You need a valid Tax Residency Certificate (TRC) from your country of residence and a completed Form 10F, claimed under Section 90. Without both, Indian payers must apply the full domestic withholding rate rather than the treaty rate - for example 15% on interest under the India-US treaty (effective 12 September 1991) instead of a higher domestic rate.

How much can I repatriate from my NRO account each year?

Up to USD 1 million per financial year, drawn from taxed India-source balances such as rent, dividends, or proceeds of inherited property. Repatriation requires a Chartered Accountant to certify Forms 15CA and 15CB confirming Indian taxes are paid. NRE and FCNR(B) balances, by contrast, are fully repatriable without this USD 1 million cap.

Does the LRS limit reset if I bring the money back to India?

No. Once you have used the full USD 2,50,000 within a financial year, no further remittance is permitted under LRS that year, even if you subsequently bring the earlier remittance back to India. The ceiling is measured on gross outward remittance during the April-March year, and it resets only on the next 1 April.