LRS Complete Guide 2026: USD 2,50,000 Limit, TCS Rates and How Remittances Work
Everything a resident Indian needs to know about the Liberalised Remittance Scheme — the annual limit, permitted purposes, TCS rates under Section 394 of the Income Tax Act 2025 effective from April 1, 2026, and the step-by-step remittance process.
Key Facts at a Glance
- Annual LRS limit: USD 2,50,000 per resident individual per financial year
- Governing law: FEMA 1999, RBI Master Direction on LRS
- TCS section (from April 1, 2026): Section 394, Income Tax Act 2025 (replaces old Section 206C(1G) of ITA 1961)
- TCS threshold: Rs.10 lakh per PAN per financial year (aggregate across all purposes and all banks)
- Education via education loan: 0% TCS (no threshold)
- Self-funded education / Medical treatment: 2% TCS above Rs.10 lakh
- Overseas tour packages: Flat 2% from the first rupee (no Rs.10 lakh exemption)
- Investment, gifts, maintenance, other: 20% TCS above Rs.10 lakh
- Joint account remittance: LRS limit and TCS always tracked against the remitter’s PAN (the person who signs Form A2 and initiates the remittance)
What Is the Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme, commonly called LRS, is a framework introduced by the Reserve Bank of India (RBI) that allows resident individuals to freely remit foreign exchange up to a specified limit every financial year without seeking prior RBI approval.
Before LRS existed, every outward foreign exchange transaction above a small limit required RBI permission case by case. LRS replaced that friction with a rule-based annual cap, letting individuals remit money for education, medical treatment, travel, investments, and family maintenance without bureaucratic delays.
LRS applies only to resident individuals as defined under FEMA 1999. It does not apply to companies, partnership firms, LLPs, HUFs (as an entity), or Non-Resident Indians (NRIs). If you are an NRI — meaning you do not qualify as a resident under FEMA — you are outside the LRS framework and different rules apply to your remittances.
Resident vs. Non-Resident under FEMA
Under FEMA 1999, a person is a resident of India if they reside in India for more than 182 days in the preceding financial year. Residency status under FEMA can differ from tax residency under the Income Tax Act. For LRS eligibility, FEMA residency is what matters.
The USD 2,50,000 Annual Limit
Each resident individual can remit up to USD 2,50,000 (or equivalent in any freely convertible currency) per financial year under LRS. The financial year runs from April 1 to March 31.
This limit is cumulative across all outward remittances under LRS during the year — across all purposes, all banks, and all transactions. If you remit USD 1,00,000 for your child’s education and later want to invest USD 2,00,000 in foreign stocks, your total of USD 3,00,000 exceeds the limit. You would need to restrict your combined remittances to USD 2,50,000 for the year.
Important: The limit resets on April 1 each year
The LRS limit does not carry forward. Any unused capacity in one financial year cannot be used in the next. Each new financial year starts fresh at USD 2,50,000.
The RBI tracks LRS usage through a Centralised Information Management System (CIMS). Since January 2026, all Authorised Dealer (AD) banks submit daily LRS reports to CIMS linked to the remitter’s PAN. This means the tracking is real-time and cross-bank — you cannot split remittances across multiple banks to stay under the threshold.
Certain Purposes Are Restricted or Prohibited
The RBI restricts or prohibits LRS for speculative and non-permitted purposes such as margin trading, lottery, sweepstakes, and trading in foreign exchange abroad. Remittances to countries identified as non-cooperative by the FATF are also restricted.
Permitted Purposes Under LRS
LRS covers a wide range of current account and capital account transactions. The main permitted purposes are:
Current Account Purposes (day-to-day and personal)
- Private visits abroad (travel, tourism, personal trips)
- Gift or donation to a person abroad
- Going abroad for employment
- Emigration
- Maintenance of close relatives abroad
- Medical treatment abroad
- Studies abroad
- Any other current account transactions permitted under FEMA
Capital Account Purposes (investments and assets)
- Opening a foreign currency bank account abroad
- Investment in shares, mutual funds, bonds or debt instruments of overseas companies
- Purchase of immovable property abroad
- Investment in overseas joint ventures or wholly owned subsidiaries (subject to conditions)
- Acquisition of qualifications abroad
TCS on LRS Remittances: Section 394, Income Tax Act 2025
When you remit money abroad under LRS, your bank collects Tax Collected at Source (TCS) before processing the transfer. This is not an additional cost or a penalty — it is an advance collection of income tax that gets credited to your PAN and adjusted against your actual tax liability when you file your ITR. If the TCS collected exceeds your tax liability for the year, you get a refund.
Until March 31, 2026, TCS on LRS was governed by Section 206C(1G) of the Income Tax Act 1961. The Income Tax Act 2025 replaced the 1961 Act with effect from April 1, 2026. TCS on LRS is now governed by Section 394 of the Income Tax Act 2025. The rates were revised by the Finance Act 2026, also effective April 1, 2026.
Section 206C(1G) is no longer applicable from April 1, 2026
Any reference to Section 206C(1G) in older bank communications or articles refers to the provision that has been re-enacted as Section 394 of the Income Tax Act 2025. The operative law from April 1, 2026 is Section 394. Some banks and intermediaries continue to cite the old section number for familiarity — the rates and thresholds are governed by the new act.
TCS Rate Table: Effective April 1, 2026
TCS Threshold: Rs.10 Lakh Per PAN Per Financial Year
No TCS is collected on LRS remittances up to Rs.10 lakh in a financial year (except overseas tour packages, which attract TCS from the first rupee). The Rs.10 lakh threshold is aggregate across all purposes, all currencies, and all banks — it is tracked per PAN, not per bank or per purpose. The threshold was raised from Rs.7 lakh to Rs.10 lakh effective April 1, 2025 and was not changed by the Finance Act 2026.
| Purpose of Remittance | Threshold | TCS Rate (from April 1, 2026) |
|---|---|---|
| Education — funded by an approved education loan from a specified financial institution | No threshold (nil on any amount) | 0% |
| Education — self-funded (not through an education loan) | Above Rs.10 lakh per FY | 2% |
| Medical treatment abroad | Above Rs.10 lakh per FY | 2% |
| Overseas tour programme packages | No threshold — from first rupee | 2% (flat) |
| Investment (foreign stocks, ETFs, real estate, foreign bank deposits) | Above Rs.10 lakh per FY | 20% |
| Gifts to relatives abroad | Above Rs.10 lakh per FY | 20% |
| Maintenance of close relatives abroad | Above Rs.10 lakh per FY | 20% |
| Any other LRS purpose not listed above | Above Rs.10 lakh per FY | 20% |
Key changes effective April 1, 2026 under the Finance Act 2026:
- Self-funded education and medical TCS rate reduced from 5% to 2%
- Overseas tour packages TCS rate reduced from the earlier slab-based 5%/20% structure to a flat 2% with no Rs.10 lakh threshold
- Investment, gifts, and other purposes remain at 20% above Rs.10 lakh (no change)
- Education via approved loan remains at 0% (no change)
- The Rs.10 lakh threshold was revised to Rs.10 lakh from April 1, 2025 and was not changed again by Finance Act 2026
PAN-Aadhaar Linkage: Double TCS if Not Linked
If your PAN is inoperative (not linked to Aadhaar), TCS rates are doubled under the applicable provision of the Income Tax Act 2025. A 2% rate becomes 4%; a 20% rate becomes 40%. Link your PAN to Aadhaar before initiating any LRS remittance to avoid this.
How TCS Is Calculated: Worked Examples
Example 1: Self-Funded Education — Remitting Rs.18 lakh for college fees abroad
TCS Calculation — Self-Funded Education
Example 2: Investment Remittance — Remitting Rs.25 lakh to buy US stocks
TCS Calculation — Foreign Investment
TCS is Refundable — It Is Not a Final Tax
The Rs.3,00,000 TCS in Example 2 is credited to your PAN in Form 26AS. When you file your ITR for the year, this amount adjusts against your total tax liability. If your tax due is less than Rs.3,00,000, the excess is refunded to your bank account. TCS blocks cash flow temporarily — it is not a permanent cost.
Who Collects TCS and When?
For LRS remittances, the Authorised Dealer (AD) bank processing your remittance is legally required to collect TCS before the funds leave India. The bank deducts TCS from your account at the time of processing the remittance and deposits it with the government against your PAN.
The bank issues you a Form 27D (TCS certificate) which you can verify in your Form 26AS and Annual Information