Make most of the Liberalized Remittance Scheme (LRS) for Capital Account Remittance.
Do you have plans to send your children abroad for higher education? Or considering immigrating to another country after a few years? If yes, then you can start preparing today via the Liberalized Remittance Scheme (LRS) route that allows resident Indians to transfer money for Capital Account Remittance.
In 2011-12, 1 USD traded at an average 45-50 INR. A decade on, in October 2021, 1 USD costs approx. INR 75. The Indian Rupee (INR) has depreciated a whopping 33-40% against the US Dollar (USD) over 10 years. In other words, equal amount of INR savings will yield 33-40% lower USD equivalent.
If the trend continues, INR savings will have to generate returns that far exceed the currency depreciation in order to yield enough foreign currency or USD savings in order to fulfil your international dreams. An easier option you may consider, is to start saving and investing in USD or other foreign currency from today!
As per the extant RBI rules, under the Liberalized Remittance Scheme (LRS), all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
Permitted Capital Account Remittance
A resident Indian is permitted to remit up to USD 2,50,000 each financial year, for following capital account transactions
- Opening and maintaining a foreign currency account with a foreign bank outside India
- Purchasing property or real estate outside India
- Investing in equity, debt, mutual funds, venture capital funds outside India
- Setting up business ventures abroad for bona fide business subject to applicable rules
No requirement to repatriate funds once transferred under LRS
Once the funds are transferred under the LRS for any capital account transaction, there is no provision or requirement to repatriate these back to India. Any dividends or interest earned on the original investment can be retained in a foreign bank account, outside India. Any proceeds or profits realized from the original investment itself can also be held overseas and re-invested in other assets or used to meet expenses abroad without having to repatriate them back to India.
Tax Collected at Source (TCS) on LRS transactions
Since October 2020, the Government of India introduced TCS of 5% on LRS transactions that exceed threshold of foreign exchange transactions (INR 7 lakh in a year). Worth noting that TCS is not an additional tax or cost to the transferor. The transferor will get credit against tax payable at the time of the income tax return filing, and can also get a refund in case the total tax already paid via TDS or advance tax payments exceed the taxes actually due for the financial year.