The LRS and its limits

Chapter 2 showed what a foreign holding does. This chapter is about whether you are allowed to have one, which in India is a real question with a specific answer.

The headline

Under the Liberalised Remittance Scheme, Authorised Dealers "may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both."

At the RBI's reference rate of 96.6149, that is about ₹2.42 crore a year, per person.

"Freely allow" is doing real work. Within the limit and the permitted purposes, no approval is needed — the bank processes it. Above it, "release of foreign exchange exceeding USD 2,50,000 requires prior permission from the Reserve Bank of India", which in practice means it does not happen for ordinary purposes.

Who can use it

Resident individuals only. The Master Direction is explicit that the Scheme "is not available to corporates, partnership firms, HUF, Trusts, etc."

That rules out the structures people reach for. A family trust cannot remit under LRS. Nor can an HUF, which is a common holding vehicle in Indian families.

Minors can. The Scheme "is available to all resident individuals including minors", with Form A2 countersigned by the minor's natural guardian. So a child has their own USD 250,000, which is the basis of the family arithmetic in the worked problem.

What the limit includes

This is the part that surprises people, and it is where plans break.

The USD 250,000 "also includes/subsumes remittances for current account transactions" — and the list is long:

• private visits abroad
• gifts and donations
• going abroad on employment
• emigration
• maintenance of relatives abroad
• business trips
• medical treatment abroad
• studies abroad

One limit, all of it. A family paying overseas university fees is consuming the same allowance an investor would use to buy foreign shares.

And travel is more comprehensively included than most realise. All tour-related expenses — rail, road and water transport, Euro Rail passes and tickets outside India, and overseas hotel and lodging — "shall be subsumed under the LRS limit", whether the tour operator collects in rupees or foreign currency.

So the practical headroom for investing is USD 250,000 minus everything else you did abroad that year, and the ordering matters: a person who takes a holiday in March may find their January investment plan was the thing that used the allowance.

What it permits as an investment

The permissible capital account transactions are listed, and three matter here:

• opening a foreign currency account abroad with a bank
• acquisition of immovable property abroad, Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI), under the Overseas Investment Rules, Regulations and Directions of 2022
• extending loans, including rupee loans, to NRI relatives as defined in the Companies Act 2013

OPI is the route for buying foreign shares and funds, and chapter 4 is about what it allows.

What it forbids

Four prohibitions, and the first is the one that catches traders.

Margins and margin calls. The Master Direction states that transactions "in the nature of remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not allowed under the Scheme."

So you cannot fund a foreign derivatives account from India under LRS. Not an options account, not a futures account, not a margin account at a foreign broker. This is a hard prohibition and it is frequently ignored by people who have read an advertisement rather than the rule. Chapter 4 shows the Overseas Investment rules closing the same door from the other side.

Prohibited and restricted purposes. The Scheme is not available for anything "specifically prohibited under Schedule I or any item restricted under Schedule II" of the Foreign Exchange Management (Current Account Transaction) Rules, 2000.

FATF non-co-operative jurisdictions. No capital account remittances to countries identified by the Financial Action Task Force as non-co-operative, nor to individuals and entities flagged as posing terrorism risk.

Resident-to-resident foreign currency gifts. "A resident cannot gift to another resident, in foreign currency, for the credit of the latter's foreign currency account held abroad under LRS."

The mechanics

Designate a branch. The individual "will have to designate a branch of an AD through which all the remittances under the Scheme will be made."

File Form A2. Required for each purchase of foreign exchange under the Scheme.

Which means the limit is monitored. Banks report remittances, and the designated-branch requirement exists so the running total can be tracked. Treating the limit as something to approach casually across several banks is not how the system is built.

The risk nobody prices

Chapter 1 gave the limit's history. It belongs here too, because it is the structural risk of this entire subject.

Date	Limit (USD)	Change
4 February 2004	25,000	—
20 December 2006	50,000	doubled
8 May 2007	1,00,000	doubled
26 September 2007	2,00,000	doubled
14 August 2013	75,000	cut by 62.5%
3 June 2014	1,25,000	restored partly
26 May 2015	2,50,000	raised

The RBI describes the sequence as revisions "consistent with prevailing macro and micro economic conditions."

Three things to take from that row.

The limit is a policy instrument, not a right. It was reduced once, sharply, and could be again.

It tightened when the rupee was weak — which is exactly when a rupee-based investor would most want to be diversified out of the rupee, and exactly when they would most want to add to a foreign holding.

But note what was not restricted. The cut applied to new outward remittances. Holdings already abroad were not seized or forced home, which is the important distinction: the risk is to your ability to add, not to what you own. An investor who builds the position gradually over years is much less exposed to this than one who plans to act decisively when the rupee falls.

Working the problem

A family of four wants to move ₹2 crore this financial year — part university fees, part investment.

Step 1 — convert. At 96.6149, ₹2 crore is about USD 2,07,000.

Step 2 — is there capacity? Four individuals at USD 250,000 each is USD 10,00,000, or about ₹9.66 crore. The ₹2 crore request is well within the family's aggregate.

Step 3 — but it is per person, so check each one. The rules that bind:

Each remitter must be a resident individual, which includes the children — "available to all resident individuals including minors", with the guardian countersigning Form A2 for a minor.

Each person's own prior use counts. If a parent already spent USD 40,000 on a family holiday and USD 15,000 maintaining a relative abroad, their remaining allowance this year is USD 1,95,000, not 2,50,000.

Step 4 — and here is the constraint that breaks naive plans. Remittances "can be consolidated in respect of family members subject to individual family members complying with its terms and conditions. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment, if they are not the co-owners/co-partners of the overseas bank account/investment."

So the two halves of the request work differently.

The university fees are a current account transaction. Family members can contribute towards them from their own limits.

The investment cannot simply be funded by pooling everyone's allowance into one parent's brokerage account. To use a child's USD 250,000 for an investment, the child must be a co-owner of that investment or account. Routing a child's allowance into an account held solely by a parent is not permitted.

Step 5 — what would stop it. In rough order of likelihood:

Allowance already consumed. Travel, gifts and fees earlier in the year, all subsumed.

Clubbing attempted on the investment leg without co-ownership — the most common planning error, and the one the Master Direction addresses by name.

The structure being wrong. If the family intended to remit through an HUF or a family trust, the Scheme is simply unavailable to those.

Purpose or destination. A Schedule I or II purpose, or a FATF-flagged jurisdiction.

Documentation. No designated branch, or Form A2 not furnished.

Step 6 — what I would actually advise. Fund the fees from the parents' allowances, since that is a clean current account use. Hold the investment in whatever ownership the family genuinely wants it in, and size each person's remittance to their own allowance and their own holding. Do not construct co-ownership purely to unlock a limit — co-ownership is a real legal fact with succession and tax consequences, and the Tax subject's chapter on where investment income lands is the one to read before inventing a structure for a remittance reason.

The point

The LRS permits a resident individual, including a minor, to remit up to USD 2,50,000 a financial year — about ₹2.42 crore at the current reference rate — for permitted current or capital account purposes, with no approval needed inside that. It is unavailable to corporates, partnerships, HUFs and trusts, and it subsumes travel, education, medical treatment, gifts and maintenance into the same allowance, so investing headroom is whatever is left. Margin remittances to overseas exchanges are prohibited outright. Family members may consolidate for current account purposes but not for investments they do not co-own. And the limit has been cut before — from USD 200,000 to 75,000 in August 2013, when the rupee was under pressure — which makes the ability to send money out, rather than the money already out, the thing exposed to policy.