Foreign Exchange Facilities for Individuals Under LRS (Part 2) | CAIIB BFM

Liberalised Remittance Scheme (LRS) is the single most tested foreign-exchange topic in the CAIIB BFM paper. And this Part-2 guide breaks down every rule a banker. An exam aspirant must know.

Under FEMA. The LRS lets a resident individual freely remit up to USD 250,000 per financial year for permitted current. Capital account transactions.

If you understand how the LRS limit interacts with gifts. Donations. Travel.

Medical. Education. And business remittances.

You can answer almost any question the examiner throws at you.

This article is your complete, exam-ready reference. We cover bank due diligence, the three FEMA schedules, cash-carrying limits, surrender rules, and the documentation checklist, with a quick-facts table and an FAQ. Bookmark it, attempt the linked mock tests, and read our other free guides to lock these concepts in.

What Is the Liberalised Remittance Scheme (LRS)?

The Liberalised Remittance Scheme is an RBI facility under FEMA that lets every resident individual send money out of India without seeking case-by-case approval. The scheme was created to simplify outward remittances. To give households genuine freedom for travel. Study, treatment, investment, and family support.

The headline number is USD 250,000 per financial year. This single ceiling covers both current account transactions (like travel. Education) and capital account transactions (like buying property or shares abroad). Once you cross it for the year. Any further remittance needs specific RBI approval.

Who Can Use the LRS?

• All resident individuals, including minors (a guardian countersigns the Form A2).
• Funds from multiple family members can be clubbed for a common purpose. Provided each individual is an eligible remitter and complies with the terms.
• The scheme is not available to corporates. Partnership firms, HUFs, trusts, or other entities.

1. Due Diligence by Authorised Dealers (AD Banks)

Before releasing any foreign exchange under LRS. Authorised Dealer (AD) banks must complete strict due diligence. This is a compliance backbone built on FEMA.

RBI guidelines, anti-money-laundering rules, and global FATF standards. Examiners love testing this because the banker. Not the customer, carries the responsibility.

1.1 Verification of Income and Bank Records

• Income Tax Returns (ITRs) to validate declared income.
• Bank statements and account history.
• Nature of credits and overall account activity.
• Source of funds verification for the remittance.

1.2 AML, CFT and FATF Compliance

• Full KYC compliance on the remitter.
• Sanctions-list screening of beneficiary and purpose.
• End-use verification so funds are not diverted.
• Adherence to FATF recommendations on financial integrity.

1.3 Suspicious Transaction Reporting (STR)

If a transaction looks suspicious. The bank must file a Suspicious Transaction Report (STR) with FIU-India within 7 days of forming that suspicion. Crucially. The customer must never be informed that an STR has been filed. This "no tipping-off" rule is a frequent one-mark question.

2. Gift Transactions Under LRS

Gifting money abroad is one of the most common real-world uses of the LRS. And one of the most misunderstood. The golden rule: a gift is allowed. But it eats into your USD 250,000 annual limit. It is not an extra allowance.

2.1 Gifts Permitted Within the LRS Limit

A resident may remit foreign exchange abroad as a gift. As long as the amount stays within the overall USD 250,000 per financial year ceiling. The gift can be to a person or. In many cases, to an eligible institution abroad.

2.2 Definition of "Relative" (Companies Act, 2013)

For several FEMA facilities, "relative" follows the Companies Act definition. Knowing this list helps you answer who can receive maintenance or gifts as a close relative.

• Husband and Wife
• Father / Stepfather
• Mother / Stepmother
• Son / Stepson
• Daughter (note: not stepdaughter)
• Daughter's husband
• Brother / Stepbrother
• Sister / Stepsister
• Members of an HUF

2.3 Resident-to-Resident Foreign Currency Gift Is Not Allowed

A resident individual cannot gift foreign currency or foreign securities to another resident. The LRS facilitates outward remittance abroad. It does not permit one resident to hand foreign currency assets to another resident inside India.

3. Donations Under LRS

Charitable giving abroad is permitted. But only within the limit and only to legitimate recipients. The same USD 250,000 ceiling applies, and screening is mandatory.

3.1 Permitted Donations

• Foreign charities with a verifiable footprint.
• International NGOs.
• Educational institutions abroad.
• Relief organisations responding to disasters.

3.2 Prohibited Donations

A donation is not allowed if the recipient appears on any sanctions list. Such as the UN, OFAC, or EU lists. Banks must screen before releasing funds.

3.3 Required Documentation

• Clear statement of the purpose of donation.
• Details of the organisation receiving funds.
• Registration or legitimacy proof of the recipient.

4. FEMA Schedules: Prohibited, Approval-Based and Permissible

FEMA classifies current account transactions into three schedules. This is arguably the highest-yield part of the entire LRS topic for CAIIB BFM. Memorise the buckets, and you can place any transaction correctly.

4.1 Schedule I - Prohibited Transactions

• Margin trading abroad
• Call-back telephone services
• Banned or prohibited magazines and publications
• Remittance of lottery winnings
• Betting and gambling activities
• Remittance of income on FCCBs in certain cases

4.2 Schedule II - Transactions Requiring Prior Approval

• Cultural tours
• Advertisements in foreign print media (beyond stated thresholds)
• Chartered vessel hiring
• Large prize money / sponsorship above prescribed limits
• CIF import payments by certain PSUs / government departments

Note: exact monetary thresholds change. Confirm them on the latest official IIBF notification and RBI rules.

4.3 Schedule III - Freely Permissible Transactions

• Travel abroad
• Education
• Medical treatment
• Gifts and donations
• Investments abroad

5. Travel Under LRS - Cash Limits and Special Rules

While the total LRS allowance is large. The amount of physical foreign currency cash you may carry is capped. The rest moves through cards, drafts, or transfers. These cash limits are a classic exam trap, so learn them precisely.

5.1 Surrender of Unused Foreign Currency

Any unused foreign currency brought back must be surrendered to an authorised person within 180 days of return. You may. However. Retain foreign currency up to the permissible threshold for future use without surrendering it.

6. Employment and Immigration Abroad

A resident moving abroad for a job or migrating can draw foreign exchange to cover the move. The standard facility is up to USD 250,000 for employment or emigration-related expenses.

If the actual cost is higher. A larger amount may be approved when the remitter submits proof. Such as a demand from the country of emigration or the relevant foreign authority. Emigration money cannot be used to obtain citizenship through investment beyond what rules permit.

7. Medical Treatment Abroad

Healthcare abroad is one of the most compassionate uses of the LRS. And the rules build in flexibility for genuine cases.

7.1 Standard Limit

Up to USD 250,000 per financial year may be remitted for medical treatment. Without any estimate from a hospital or doctor.

7.2 If the Medical Estimate Exceeds the Limit

If a doctor in India or the treating hospital abroad gives an estimate higher than USD 250,000. A larger amount can be released on the strength of that estimate.

7.3 Maintenance Expenses of a Patient / Attendant

An additional USD 250,000 is generally allowed toward maintenance of a patient going abroad for treatment or check-up. For an attendant accompanying the patient. An extra amount (commonly cited as around USD 25,000) may be permitted. Always reconfirm the exact attendant figure on the latest official IIBF notification. As it has been revised over time.

8. Higher Studies Abroad

Funding education overseas is hugely popular. And it has important FEMA consequences for the student's residential status. Watch these points carefully.

• Education fees and related expenses are permitted under LRS.
• Higher remittances are allowed when the institution's fee structure or demand letter shows a larger requirement.
• A student who goes abroad for studies is generally treated as a Non-Resident Indian (NRI) for FEMA purposes.
• The student's NRO account income remains taxable in India.
• Up to USD 1 million can be repatriated per financial year from an NRO account (subject to taxes. Documentation).

9. Purchase of Art, Antiques and Collectibles

Residents may remit funds to buy art. Antiques, and collectibles abroad within the LRS limit. Because these assets are prone to misuse and valuation disputes. Banks insist on solid paperwork, including authenticity certificates and proper invoices.

10. Business Travel Under LRS

Business trips are treated differently depending on who pays. This is a high-frequency exam point. The answer flips based on funding.

10.1 Self-Funded Business Travel

If the traveller pays from personal funds. The expense falls under LRS and counts toward the USD 250,000 annual ceiling.

10.2 Employer-Funded Business Travel

If the employer bears the cost. The remittance is treated as a business expense of the employer. Is not counted under the individual's LRS limit.

11. Documentation Required for LRS

Get the paperwork right and the remittance is smooth. Here is the standard checklist an AD bank expects.

• PAN Card (mandatory for all LRS remittances)
• Form A2 with the application
• FEMA declaration on purpose and limit
• Passport
• Visa (if applicable)
• Air ticket (for travel-linked remittances)
• Income proof (ITR / salary slips)
• Bank statements
• Purpose documents (fee schedule, medical estimate, invoice, etc.)

How to Study LRS for CAIIB BFM (Smart Method)

LRS rewards structured revision over rote cramming. Use this simple study plan to convert this topic into guaranteed marks.

1. Anchor the number first. Burn "USD 250,000 per financial year" into memory. Almost every sub-rule branches from it.
2. Master the three schedules. Make a one-line rule card: I = banned, II = approval, III = free.
3. Memorise the cash table. 3,000 general, 5,000 Iraq/Libya, no limit for Haj and Iran/Russia.
4. Drill the exceptions. Attendant amount, NRO USD 1 million, 7-day STR, 180-day surrender.
5. Practise application MCQs. Attempt our mock tests and review explanations until you stop missing the "who funds it" style traps.

Common Mistakes Students Make

• Treating gifts/donations as extra beyond USD 250,000. They are inside the limit.
• Confusing the cash-carrying limit with the total LRS limit. USD 3,000 is only physical currency, not the whole allowance.
• Forgetting the no tipping-off rule for STRs.
• Missing the employer-funded business travel exception.
• Ignoring the NRI status a student acquires and its tax impact.
• Memorising old figures. Limits change. Always confirm on the latest official IIBF notification and RBI Master Direction.

Frequently Asked Questions (FAQ)

What is the LRS limit per financial year?

The Liberalised Remittance Scheme allows a resident individual to remit up to USD 250,000 per financial year for permitted current. Capital account transactions combined. Beyond this, specific RBI approval is required. Always reconfirm the current ceiling on the latest official IIBF notification.

Can I gift foreign currency to another resident in India?

No. A resident individual cannot gift foreign currency or foreign securities to another resident. The LRS facilitates outward remittance abroad. Not transfer of foreign currency assets between two residents within India.

How much cash can I carry abroad under LRS?

Foreign currency cash is generally capped at USD 3,000 per trip for most countries. USD 5,000 for Iraq and Libya. And no cash limit for Haj/pilgrimage and travel to Iran/Russia. The balance of your entitlement must move via cards, drafts, or transfers.

Are gifts and donations counted within the USD 250,000 limit?

Yes. Gifts. Donations abroad are permitted.

Are counted within the overall USD 250,000 annual ceiling. Not in addition to it. Donations also require recipient screening against UN/OFAC/EU sanctions lists.

What happens to a student's residential status when they go abroad to study?

A student going abroad for higher studies is generally treated as a Non-Resident Indian (NRI) under FEMA. Their NRO account income remains taxable in India. And up to USD 1 million per financial year can be repatriated from the NRO account. Subject to taxes and documentation.

Conclusion: Turn LRS Into Easy Marks

The Liberalised Remittance Scheme looks vast. But it is built on one number. A handful of clean rules.

Lock in the USD 250,000 ceiling. The three FEMA schedules. The cash-carrying table.

And the key exceptions. And you can confidently clear every LRS question in CAIIB BFM. Both in theory and in practice as a banker.

Now put it into practice. Revise this guide, attempt the linked mock tests, explore more free guides, and verify every figure against the most recent RBI Master Direction and IIBF notification before exam day. Consistent revision is what turns a tricky topic into your strongest scoring area. You have got this.

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