Liberalised Remittance Scheme – How Liberal It Is? (An Overview And The Recent Amendments)

This article looks at recent amendments in the Liberalised Remittance Scheme (LRS) under Foreign Exchange Management Act (FEMA) and in the provisions of Tax Collection at Source (TCS) on remittances under LRS under the Income-tax Act. The changes are significant and people should be aware of these issues. Along with the recent amendments, we have dealt with some important & practical issues also. A. FOREIGN EXCHANGE MANAGEMENT ACT: 1. Background: 1.1 In February 2004, RBI introduced the LRS with a small limit (vide A.P. Circular No. 64 dated 4.2.2004). Any Indian individual resident could remit up to US$ 25,000 or its equivalent abroad per year from his own funds. It was introduced to provide exposure to individuals to foreign exchange markets. Dr. Y. V. Reddy, ex-Governor of RBI in his book titled “Advice & Dissent” on Page 352 mentions that the funds could be used for almost any purpose. It was supposed to be a “No questions asked” window and was in addition to all existing facilities. Late Finance Minister Mr. Jaswant Singh in a gathering said “Go conquer the world, we will be your supporters”. That was the underlying theme of the LRS. 1.2 There was a small negative list of purposes for which remittance could not be made. The negative list included payments prescribed under Schedule I and restricted under Schedule II of Current Account Transaction Rules such a