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Liberalized Remittance Scheme (LRS)

Liberalized Remittance Scheme (LRS):

Finance Ministry has announced that it will waive the 20% tax on overseas credit card spending for individuals up to ₹7 lakh per financial year, following criticism and concerns raised by taxpayers and businesses.

  • The Reserve Bank of India had introduced a provision to capture overseas credit card spending under the LRS, which allows individuals to remit forex up to $2.5 lakhs annually.
  • However, the government’s plan to impose a 20% tax on such spending faced backlash, leading to its current decision to exempt spending up to ₹7 lakh and the continuation of beneficial treatment for education and health payments, under the LRS.
  • Liberalized Remittance Scheme (LRS), remittance refers to the transfer of foreign exchange (forex) by resident individuals in India for various purposes.
  • The LRS sets the limit on the amount of money that can be remitted by individuals without requiring specific approvals from regulatory authorities.
  • Under LRS Indian individuals can send money outside up to a maximum of $250,000 in a year.
  • Aim is to
    • Simplify the process of remitting money outside India and encourage foreign investments by Indian individuals
    • Permissible Transactions Education, travel, medical treatment, gifting, investment in shares or property, etc.
    • Non-Permissible Transactions Trading in foreign exchange or buying lottery tickets
    • Ineligible Entities Corporations, partnership firms, Hindu Undivided Family (HUF), Trusts, etc.
  • Benefits
    • Diversify investments and assets, finance foreign education or travel
    • Issues Outward remittances may pressure Forex reserves