Main points
- LRS allows $250,000/year per person for overseas investments including US stocks. No prior RBI approval needed.
- You must be an Indian resident. NRIs have different rules (actually easier—no LRS limit for them).
- A2 Form declaration mandatory when transferring funds. Banks handle it—takes 5 minutes.
- 20% TCS on amounts >₹7 lakh. Collected by bank, refundable via ITR.
- Penalty for violations: ₹10,000-300% of amount involved. Plus prosecution under FEMA. Stay compliant.
- No restrictions on selling US stocks. Profits can stay abroad or be repatriated anytime.
What is the Liberalized Remittance Scheme (LRS)?
The Liberalized Remittance Scheme (LRS) is RBI's framework that allows Indian residents to freely transfer money abroad for permitted purposes—without seeking prior approval from RBI or any regulator.
Introduced: 2004 (initially $25,000 limit)
Current limit
(2026): $250,000 per person per financial year
Permitted uses:
Overseas investments (stocks, real estate), education, medical treatment, travel, gifts, donations,
and more.
Why LRS Matters for US Stock Investors
Under LRS, investing in US stocks (Tesla, Nvidia, Palantir) is classified as "investment in securities"—a permitted purpose. This means:
No Prior Approval
Transfer funds to your international broker (Vested, INDMoney) without asking RBI for permission. It's automatic.
$250K Annual Limit
Enough for most retail investors. That's ~₹2 crore/year at current exchange rates.
Resets Every April 1
LRS limit resets each financial year. Use ₹2 crore in FY25-26, get fresh ₹2 crore quota in FY26-27.
Contrarian Take
Everyone's worried about Meta's metaverse spending. They should be. But what they miss is that Meta's AI advertising engine is so far ahead, they can burn $10B yearly on moonshots and still dominate.
Who Can Use LRS? Eligibility Criteria
Eligible: Indian Residents
If you're an Indian resident as per FEMA (Foreign Exchange Management Act), you can use LRS. This includes:
- Indian citizens living in India
- Indian citizens working abroad but classified as "resident" for tax purposes (stayed in India >182 days in the year)
- Foreign nationals residing in India (with some restrictions)
Not Eligible: NRIs, PIOs, HUFs, Trusts, Corporates
- NRIs (Non-Resident Indians): Cannot use LRS. But they can invest directly in US stocks through US brokers without limits. Simpler for them.
- HUFs, Trusts, Partnership Firms: Not allowed under LRS. Only individuals.
- Corporates/Companies: Separate rules under ODI (Overseas Direct Investment). Not covered by LRS.
Important: Resident vs NRI Status
Your status depends on days spent in India, not passport. If you're an Indian citizen working abroad but visit India often, check your residential status carefully. Misclassification can lead to compliance issues.
The $250,000 Limit: What Counts, What Doesn't
What Counts Toward Your LRS Limit
- Money you transfer abroad for investments, education, travel, gifts, etc.
- Cumulative across all purposes: If you send $100K for US stocks + $50K for your child's education, you've used $150K of your $250K quota.
- Per person, not per account: Can't bypass limit by using multiple bank accounts. It's tracked via PAN.
What Doesn't Count
- Profits you earn abroad: If you invest $100K and it grows to $200K, only the initial $100K counts toward LRS. The $100K profit is yours, can stay abroad or be repatriated.
- Repatriation (bringing money back): No limit on bringing profits back to India. LRS only governs outward remittances.
- Currency fluctuations: LRS limit is in USD. If INR weakens and your ₹20L becomes $260K, you don't violate LRS—you remitted ₹20L when it was worth $240K.
Example: Using Your LRS Quota
April 2025: You send ₹50 lakh ($60K) to Vested for Tesla stock.
August 2025: You send ₹70 lakh ($85K) for Nvidia stock.
November 2025: You send ₹40 lakh ($48K) for your child's tuition in US.
Total used: $193K of $250K. Remaining: $57K until March 31, 2026.
April 2026: Fresh $250K quota. Can send more money.
Can You Combine LRS Quotas?
Yes—through family members. Each individual gets $250K/year. Strategies:
- Spouse's quota: Your spouse has their own $250K. If you need $500K, you both send $250K each. Legal as long as they genuinely invest (not just passing through).
- Parents/children: Technically possible but gray area. Should be genuine investments by them, not proxy for you.
Don't Try to Game the System
RBI tracks LRS transactions via PAN. Trying to exceed limits through shell transactions, fake purposes, or structuring is illegal. Penalties include:
- ₹10,000 fine minimum
- Up to 3x the amount involved (e.g., violate by ₹10L, pay ₹30L penalty)
- Prosecution under FEMA (can lead to jail time in extreme cases)
Documentation & Compliance: The A2 Form
When you transfer money under LRS, your bank requires an A2 Form (LRS Declaration). This is the only mandatory documentation.
What is the A2 Form?
A simple one-page declaration where you state:
- Purpose of remittance: "Investment in overseas securities"
- Amount being sent: e.g., ₹10 lakh = ~$12K
- Confirmation: You're an Indian resident, haven't exceeded $250K limit, funds are from legitimate sources
How to submit: Most banks have online A2 forms now. Fill it while initiating wire transfer. Takes 5 minutes.
Documents Banks May Ask For
- PAN card (mandatory)
- Bank account statement (last 3-6 months, to prove source of funds)
- Broker account details (where you're sending money—e.g., Vested's DriveWealth account)
- ITR (Income Tax Return) for large amounts (₹50L+)
TCS Collection
For remittances >₹7 lakh for overseas investments:
- 20% TCS on (amount - ₹7L)
- Example: Send ₹12L → TCS on ₹5L = ₹1L gets deducted
- Actual remittance: ₹11L goes abroad
- TCS certificate: Bank provides. Claim refund via ITR.
Best Banks for LRS
HDFC, ICICI, Axis, Kotak—fast processing (24-48 hours). SBI is slower (3-5 days). Avoid small banks for international transfers.
Processing Time
Wire transfer: 2-3 business days. Factor this in when timing stock purchases. Can't buy Tesla today if you initiated transfer yesterday.
What's Not Allowed Under LRS
RBI has prohibited/restricted certain purposes:
| Prohibited Purpose | Why |
|---|---|
| Buying lottery tickets abroad | Gambling-related, not permitted |
| Trading on margin/leverage | RBI discourages leveraged overseas investing by residents. Cash investments only. |
| Crypto trading on exchanges | Gray area. RBI hasn't explicitly banned but discourages. Risky. |
| Sending to banned countries | Pakistan, North Korea, etc. Sanctions apply. |
Good news: Buying US stocks (even speculative ones like Tesla) on cash basis is 100% permitted. Options trading is technically allowed but some brokers avoid it to stay conservative.
Penalties for Non-Compliance
Violating LRS/FEMA rules can be expensive:
Common Violations & Penalties
- Exceeding $250K limit: Penalty up to 3x the excess amount. E.g., send $300K (₹50K over) → penalty up to ₹1.5 crore.
- Not filing ITR/Schedule FA: ₹10 lakh penalty per year of non-disclosure.
- False declaration on A2 form: FEMA violation, ₹10K-₹50K fine + potential prosecution.
- Money laundering concerns: If source of funds is unclear, banks freeze accounts. ED/Income Tax investigation possible.
How RBI Catches Violations:
- Banks report all LRS transactions to RBI (SWIFT codes tracked)
- Cross-matched with your ITR via PAN
- US-India tax treaty: IRS shares data with Indian tax authorities
- Algo-based flagging: Unusual patterns (e.g., ₹5 crore sent over 2 years but ITR shows ₹10L income) trigger scrutiny
The Smart Play: Full Compliance
Staying 100% compliant is easy and risk-free. Don't try to be clever. The penalties aren't worth it.
Pro Tips for Using LRS Smartly
Spread Remittances Across Financial Years
Need ₹15 lakh but want to avoid TCS? Send ₹6.9L in March FY25, ₹8.1L in April FY26. Zero TCS, both years under ₹7L threshold.
Use Family Quotas (Legitimately)
If you genuinely want your spouse to invest in US stocks, they get separate $250K quota. Don't use it as pass-through—must be their investment.
Keep Profits Abroad
LRS only limits outward remittance, not what you earn abroad. Grow $100K to $500K—only initial $100K counted. Keep rest invested or bring back anytime.
Maintain Paper Trail
Keep A2 forms, TCS certificates, broker statements, ITRs for 7 years. If RBI ever questions, you have proof.
Wire Transfers Only
Use banking channels only. No cryptocurrencies, hawala, cash couriers. Those are illegal and will land you in serious trouble.
RBI Rules Are Clear & Fair
The $250K annual limit is generous for retail investors. The A2 Form takes 5 minutes. TCS is refundable. RBI wants you to invest globally—just stay compliant.
Follow the rules. Declare everything. Sleep soundly.
The Indian government wants its citizens to build global wealth. Take advantage of it.