Liberalised Remittance Scheme (LRS) Guide for Indian landlords

What is the Liberalised Remittance Scheme (LRS)?

The Liberalised Remittance Scheme (LRS) is the main way through which Indian residents legally send money overseas for property investments, including reservation deposits, stage payments and final completion amounts in markets like the United Kingdom.

The Liberalised Remittance Scheme (LRS) was introduced by the Reserve Bank of India in 2004. Under this scheme, resident individuals can remit funds overseas under a regulated framework and for both current and capital account transactions. LRS is administered by Authorised Dealer Category-I (AD-I) banks under the oversight of the Reserve Bank of India.

This Liberalised Remittance Scheme guide covers how this scheme works and how to use it when investing in overseas real estate.

Legal framework: FEMA and regulatory oversight

The foundation of LRS lies in the Foreign Exchange Management Act (FEMA), 1999. FEMA monitors cross-border transactions that involve foreign exchange and capital transfers from India.

Under FEMA, transactions are classified and allowed under the following two categories:

• Current account transactions include travel, education and maintenance expenses.
• Capital account transactions include investments in assets, property acquisitions and financial instruments.

Transactions under LRS are handled by Authorised Dealer Category-I (AD-I) banks, who are also responsible for KYC checks, ensuring Anti-Money Laundering (AML) compliance, verifying purpose codes and maintaining records.

Who is eligible under LRS?

Most Indian nationals are eligible under LRS. Residency is determined by duration and intention of stay in India and not nationality alone. Eligible groups include salaried individuals, self-employed professionals, business owners, high-net-worth individuals, students and minors.

This scheme does not apply to corporates or partnerships, limited liability partnerships, trusts or Hindu Undivided Families and Non-Resident Indians (NRIs).

Understanding the annual Remittance limit

Under LRS, each individual can remit USD 250,000 in a financial year. This limit includes the principal remitted amount, foreign exchange conversion costs, bank processing charges and funds loaded onto foreign currency cards.

There is no limit on the number of transactions that can be completed in year, however, the total amount sent overseas should remain within the annual limit.

The limit resets on 1 April each year; this is why timing becomes relevant for staged overseas transactions.

Remittance beyond the prescribed limit requires specific RBI approval, except in certain defined circumstances, such as emigration or medical treatment.

What can you use LRS for?

LRS for property purchase in India allows both current and capital account transactions abroad.

Buying overseas property under LRS

LRS permits resident individuals to acquire immovable property outside India without prior RBI approval, provided remittances are within the annual ceiling.

For example, an Indian investor purchasing a property in the UK can use LRS to remit funds for the initial reservation deposit, contract exchange deposit and completion payment.

If the property values exceed the individual annual limit, the buyer can structure remittances over multiple financial years, multiple family members and opt for a combination of Indian remittance and overseas financing.

Tax Collected at Source (TCS) on LRS remittances

The Finance Act has introduced Tax Collected at Source (TCS) on outward remittances under LRS. TCS is applicable when aggregate remittances exceed ₹10 lakh in a financial year.

The rate varies depending on the nature of the remittance; education and medical remittances can attract concessional rates. Capital account transfers, such as property investments, can attract higher rates once the threshold is crossed.

TCS is not an additional tax. It functions as a pre-collection mechanism and is adjustable against the final income tax liability.

Transactions prohibited under LRS

While LRS allows a large range of outward transactions, certain activities are prohibited. These include

• Margin trading or margin calls to overseas exchanges,
• Lottery and sweepstakes purchases,
• Foreign exchange trading abroad,
• Purchase of Foreign Currency Convertible Bonds and
• Transactions that involve individuals or entities flagged under anti-terrorism regulations.

Step-by-step remittance process

• The remitter must maintain a valid PAN.
• They should have a resident savings bank account
• Submit Form A2
• Provide an LRS declaration
• Specify the correct purpose code
• Complete KYC and AML verification
• Process remittances through an Authorised Dealer Category-I bank.
• Banks are not allowed to extend credit facilities specifically for LRS remittances. Funds must originate from legitimate sources within India.

Overseas asset disclosure and compliance

If you buy property or hold any assets outside India, you are required to report them in your Income Tax Returns. This is done under the Foreign Assets section. Failure to report can lead to serious penalties under the Black Money Act.

To simplify it, if an Indian resident investor earns rental income from a property abroad, it is taxable in India. It can also be taxed in the country where the property is located.

India has agreements with countries like the UK, called the Double Taxation Avoidance Agreement or DTAA, to ensure investors are not taxed twice on the same income.

Navigate overseas property investment with Benham & Reeves India

Understanding the Liberalised Remittance Scheme is an important step for Indian residents seeking to invest in overseas property, as it determines how remittances, taxes and banking processes work together. This process can feel complicated to many investors; this is where experienced guidance becomes key.

Benham & Reeves India has been helping discerning Indian buyers invest in UK property for many years. Our team offers assistance with property selection, understanding the purchase and remittance process and coordinating with financial professionals in London.

If you are seeking secure residential property investments in the UK, connect with our Mumbai or Delhi offices to schedule a one-on-one consultation.