Home >Opinion >Online-views >Liberalized remittance scheme: what it is and how it works

Congratulations! If you’re reading this, you probably have an interest in gaining independence from rupee-denominated assets. Diversifying assets has long been credited with reducing volatility and enhancing returns in an investment portfolio. In the case of Liberalised Remittance Scheme (LRS), the Reserve Bank of India (RBI) has given resident Indians the nod to invest in non-rupee-denominated assets in foreign markets. If properly researched and utilized, LRS can be a great vehicle for resident Indians to diversify their investments by adding positions of foreign equities and properties. There’s only one problem—resources are little and far in between.

There are many clients dealing in LRS daily. More often times than not, we interact with our customers who are completely unaware of the scheme’s caveats and when we notify them of the scheme, the most common response is: “Is this legal?" Of course it is.

LRS was introduced by RBI in 2004. The primary aim of the scheme is to help resident Indians remit up to $200,000 (in dollar equivalence) to foreign countries for investment purposes. LRS has evolved since 2004 and the maximum limit has also been increased helping individuals increase their foreign investment ability.

Naturally, many customers request additional information on LRS. We guide them to the RBI’s website. But, this is usually pointless. The RBI website has a laundry list of frequently asked questions (FAQ). But some of it contradicts itself. Here is a quick analysis of the scheme which will help you gain comfort in pursuing your mission towards rupee independence.

RBI is quite clear as to what is permitted and what is prohibited. Let’s first start with a list of the most common permissible transactions: funding stock and mutual fund brokerage investments, purchasing real estate, gifts and donations. The prohibited transactions include purchasing of lottery or sweepstakes, funding margin calls, funding active foreign exchange trading, funding the initial capitalization of a company, speculation (derivatives or any other financial instrument), remittances to Bhutan, Nepal, Mauritius and Pakistan or other non-cooperative countries (as described by Financial Action Task Force).

Often customers approach banks and submit their demand draft documentation, which instruct their bankers to initiate a wire into their accounts held abroad and to everyone’s surprise are turned away by the bank. This has happened on numerous occasions. Here are a few steps to follow if you are interested in sending funds abroad:

1. Approach your banker and notify him that you would like to engage in an outward remittance via demand draft, under LRS.

2. Form A2 will be presented to you in addition to the demand draft documentation. Complete these forms with accurate information. Form A2 is a declaration form. Under the scheme, you are required to attest that you have not breached the $200,000 per year maximum limit and state the purpose of the remittance.

It is a common malpractice by banks to request customers to complete 15CA/CB document. This is not necessary under LRS transactions.

Additionally, if you have not had your account with your bank for at least a year, be prepared to provide additional documentation such as bank statements for one year prior to the remittance or copies of the latest income-tax return or assessment order.

Visit the RBI website and read the FAQ list prior to engaging in this transaction. Arming yourself with as much information possible prior to discussing the transaction with your banker might be your best bet. Many banks, especially in less metropolitan communities have never been required to generate an LRS-friendly transaction, and as a result they simply will turn you away, telling you they are unable to facilitate the transaction. Insist to speak with the bank manager and if he conveys the same message ask to speak to a superior. This is a perfectly legal transaction and if all above steps are followed, there is no reason you shouldn’t be investing in international markets.

Neel Pujara is CEO of, an online stock brokerage firm which helps resident indians access the US markets.

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