India’s $250K Remittance Rule Gets Major Overhaul: Full Details Inside

India’s $250K Remittance Rule Gets Major Overhaul: Full Details Inside
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Central Bank Moves to Prevent Misuse of Liberalised Remittance Scheme for Foreign Deposits

The Reserve Bank of India is planning to tighten rules on money transfers abroad by Indian citizens. The central bank wants to stop people from using these transfers to park money in foreign bank accounts that earn interest.

The changes will affect the Liberalised Remittance Scheme (LRS), which allows Indians to send up to US$250,000 per year overseas. RBI officials say this step prevents "passive wealth shifting" that raises concerns for the central bank.

Current System Under Review

Right now, Indian residents use the scheme for education overseas, medical treatment, travel, and investments in foreign stocks. The scheme has become popular, with individuals sending US$173.2 million abroad in March, up from US$51.62 million in February.

March typically sees peak activity as people use their yearly limit before the financial year ends. Total outward remittances under the scheme reached US$30 billion in 2024-25, slightly down from US$31 billion previously.

What Changes Are Coming

RBI wants to stop people from using overseas transfers for foreign time deposits or interest-bearing accounts. A senior RBI official told Reuters that this practice goes against India's controlled currency system.

The central bank is working with the government to create new rules preventing such deposits under different names. The move addresses growing misuse of the scheme as a vehicle for moving money abroad without real investment purposes.

Impact on Genuine Investments

Regular investments will not be affected. People can still invest in foreign stocks, mutual funds, or buy property abroad under the current scheme. The restrictions will only apply to parking money in deposit accounts.

Fintech companies and private banks have made overseas investments easier for Indians. However, RBI is concerned about misuse where people simply move money to earn interest abroad instead of making real investments.

Policy Alignment

India follows a careful approach to outward money flows to protect foreign exchange reserves and keep the rupee stable. These changes align with the country's controlled approach to capital account convertibility.

An official confirmed that authorized foreign investments in shares, mutual funds, and real estate under LRS remain unaffected. The updated regulations target only passive fund parking activities.

The Reserve Bank continues discussions with the government to finalize these changes within the existing remittance framework.

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