The Liberalised Remittance Scheme (LRS) is a method through which Indian residents can send up to $250,000 to overseas jurisdictions for investment and expenditure. This scheme was created to enable Indians to invest in properties, education, and healthcare overseas. However, recent changes to the scheme have made it mandatory for residents to repatriate any unutilized funds back into the country after 180 days.

Need for Liberalised Remittance Scheme (LRS)

The $250,000 cap may not be sufficient for high net worth individuals (HNIs) who want to purchase properties abroad or pursue higher education. Thus, many HNIs have accumulated foreign exchange by sending up to $250,000 yearly to cover these expenses. The LRS has made it easier for Indians to invest in properties, education, and healthcare overseas.

What is the Liberalised Remittance Scheme (LRS)?

The LRS is a method that enables Indian residents as defined by the Foreign Exchange Management Act to send up to $250,000 to an overseas jurisdiction per year. However, corporations, partnership businesses, Hindu Undivided Families (HUF), trusts, etc. are not eligible to use this scheme.

Challenges with Liberalised Remittance Scheme (LRS)

While the LRS has made it easier for Indians to invest in properties, education, and healthcare overseas, it has also brought some challenges,

  • One of the biggest challenges is the risk that residents face when investing their idle funds in securities.
  • Typically, idle money is kept in bank accounts with a small risk of capital loss, but investing in securities carries a risk of loss.
  • Another challenge is the additional strain that remittances from abroad put on the nation’s foreign exchange reserves.
  • When Indians invest in foreign securities, the funds leave the country, leading to a decrease in foreign exchange reserves.

MCQs about The Liberalised Remittance Scheme

  1. What is the maximum amount of money that an individual can send abroad under the Liberalised Remittance Scheme (LRS)?
    A. $100,000 per year
    B. $200,000 per year
    C. $250,000 per year
    D. $500,000 per year
    Correct Answer: C. $250,000 per year
    Explanation: According to the essay, an individual can send up to $250,000 to an overseas jurisdiction per year under the Liberalised Remittance Scheme (LRS).
  2. What is the main challenge faced by residents under the Liberalised Remittance Scheme (LRS)?
    A. The risk of capital loss associated with bank accounts
    B. The risk of loss associated with investing idle funds in securities
    C. The limitations on the types of expenditures that can be covered
    D. The additional paperwork required to make remittances
    Correct Answer: B. The risk of loss associated with investing idle funds in securities
    Explanation: According to the essay, one of the biggest challenges faced by residents under the LRS is the risk that they face due to investing their idle funds in securities. While bank accounts carry a small risk of capital loss, investing in securities carries a risk of loss.
  3. What is one of the challenges that residents face when investing their idle funds in securities?
    A. High risk of capital loss
    B. Low risk of capital loss
    C. No risk of capital loss
    D. Guaranteed capital gain
    Correct Answer: A. High risk of capital loss
    Explanation: According to the essay, one of the biggest challenges of investing idle funds in securities is the risk that residents face due to the potential for loss. This is in contrast to keeping idle funds in bank accounts which carry a small risk of capital loss.

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