About Liberalized Remittance Scheme 

• The liberalized remittance scheme allows Indian residents to remit funds abroad for various specified purposes without any restrictions or prior approval from the RBI. It has several advantages but is subject to certain eligibility criteria.
• The scheme was introduced in India in 2004 by the Reserve Bank of India (RBI). It enables Indian residents to remit funds abroad for certain specified purposes. 
• The scheme has been one of the most important instruments for promoting international trade and investment, as well as for facilitating capital flows into and out of India.
• Prior to this, the Foreign Exchange Management Act (FEMA) 1999 had imposed several restrictions on the transfer of funds from India to other countries. 
• Under the new scheme, individuals were allowed to remit up to USD 25,000 per financial year for eligible transactions. The amount was subsequently increased to USD 50,000 in 2007 and further increased to USD 250,000 in 2013.

Objective

• The primary objective of the liberalized remittance scheme is to liberalize the existing foreign exchange regulations and facilitate the smooth transfer of funds abroad by Indian residents. 
• The scheme also aims to promote and encourage non-residents to invest in India and promote outward remittances from India.

Who can avail the benefits under this scheme?

• In order to avail the benefit of the LRS, the individual must be an Indian resident as defined under the Foreign Exchange Management Act (FEMA). It cannot be used by corporations, partnership firms, Hindu Undivided Family (HUF), trusts, etc.
• He/she must also have a valid PAN card, a bank account in India, and a valid passport. 

What are the benefits of liberalized remittance scheme?

• One of the major advantages of the scheme is that it enables individuals to make investments in international financial markets without having to go through the cumbersome process of obtaining permission from the RBI. 
• The scheme also provides an avenue for Indians to transfer funds to their family members or friends who are residing abroad. This is especially useful when there is an emergency situation where funds are needed urgently.
• The scheme also opens an opportunity for non-resident Indians (NRIs) to transfer funds to their relatives in India. This can be done without any restrictions, making it easier for NRIs to maintain contact with their family members back home.

Are there any limitations of the liberalized remittance scheme?

• Although the liberalized remittance scheme has several advantages, it is subject to certain restrictions and limitations. These include:
• The maximum amount that can be remitted in a financial year is USD 2,50,000. Any amount exceeding this limit requires prior permission from RBI.
• Remittances under the scheme are not permitted for certain activities such as real estate, the purchase of lottery tickets, margin trading, and speculation in foreign exchange markets.

Why in News?

• According to the latest RBI data, outward foreign exchange remittances by resident Indians fell by 43.93 per cent to $2.181 billion during the month of June 2024 as against $3.890 billion in June last year.
• Further, outflows under the Liberalised Remittances Scheme (LRS) of the RBI declined by 24.47 per cent to $6.88 billion during the first quarter ended June 2024 from $9.11 billion in the same quarter of the previous year.
  • Under LRS, all resident individuals, including minors, can remit up to $250,000 (approximately Rs 2.09 crore) abroad per year without prior approval from the RBI. LRS limit, which was $75,000 in 2014, was hiked to the present level over the years.
• Travel has emerged as the primary source of remittance outflow from India, accounting for over 50 per cent of total outflows from just 1.5 per cent share in FY14. LRS remittances under the gift category were down at $228.81 million in June this year from $ 643.95 million in June a year ago, investments in equity and debt fell to $120.22 million from $314.73 million and maintenance of close relatives at $270.72 million as against $890.89 million.
• One of the main reasons for this decline has been the implementation of the Tax Collection at Source (TCS) on LRS transactions. 
  • The Union Government introduced TCS on remittances under the scheme for all purposes except education and medical treatment. 
  • This has disincentivised remittances as reflected in the June data.
  • TCS is not an additional tax liability as people can claim a refund while filing income tax returns.
• Outward remittances under LRS were higher at $31.73 billion FY24 as against $27.14 billion in FY23.

https://indianexpress.com/article/business/economy/outward-remittances-under-lrs-drop-44-in-june-on-global-headwinds-tcs-9524462/