FEMA Explained (Part 3): Sending Money Abroad – LRS, Overseas Investment and ECB
Sending money abroad under FEMA: LRS USD 250,000 limit and TCS, overseas investment 400% net worth, APR, and the 2026 ECB reset, with mistakes to avoid.
A family near Kokapet wants to fund a child’s master’s degree in Canada. A software company in Nanakramguda wants a US subsidiary. A Gachibowli manufacturer wants a dollar loan. Three goals, three different FEMA doors.
- Part 1: What FEMA is, who it covers, the rule book
- Part 2: Money coming in: FDI, FC-GPR, FC-TRS, FLA
- Part 3: Money going out: LRS, ODI, ECB (you are here)
- Part 4: Trade and people: exports, imports, NRIs
- Part 5: Penalties, compounding, appeals, calendar
| Door | Who | Headline limit | Key form / action |
|---|---|---|---|
| LRS | Resident individuals, including minors through a guardian | USD 250,000 per financial year, all permitted purposes together | Form A2 through the AD bank; TCS may apply |
| Overseas Investment (ODI / OPI) | Indian entities and resident individuals (within LRS) | Entities: financial commitment up to 400% of net worth; OPI up to 50%; prior RBI approval above USD 1 billion in a year | Form FC, UIN, APR by 31 December |
| ECB | Eligible Indian borrowers, now including LLPs | Market-based pricing; no all-in-cost ceiling (arm’s length for related parties) | Form ECB-1 for LRN; Form ECB-2 within 7 calendar days of month-end after a drawdown or repayment |
1. LRS: the family and individual route
The Liberalised Remittance Scheme, introduced in 2004, lets each resident individual remit up to USD 250,000 per financial year (1 April to 31 March) for permitted current and capital account purposes. The limit is per individual, not per household, and it covers the total of all remittances in the year, including debit and forex card spending abroad.
| Permitted | Not permitted |
|---|---|
| Overseas education and medical treatment | Forex trading abroad |
| Private visits and travel | Margin or margin-call payments to overseas exchanges or counterparties |
| Gifts and maintenance of close relatives | Anything otherwise prohibited under FEMA or other law |
| Overseas investments and foreign bank accounts |
TCS on LRS: the tax layer
Tax Collected at Source is a tax-law matter, separate from FEMA but collected by the bank when you remit. Under the Income-tax Act, 2025, reports for FY 2026-27 indicate: no TCS up to Rs 10 lakh in the year; above that, 2% for education and medical remittances (reduced from 5% by the Finance Act, 2026), and 20% for other purposes; amounts funded by a qualifying education loan are treated differently; overseas tour packages have a separate 2% rule (confirm against Section 394 and the Finance Act, 2026 before relying). TCS is generally a credit against your tax liability, not an additional cost.
2. Overseas Investment: the company route
The Overseas Investment Rules, 2022 (with Regulations FEMA 400/2022-RB) replaced the old ODI framework. Overseas Investment equals Financial Commitment (equity, debt and guarantees in a foreign entity where the Indian entity has a direct investment) plus Overseas Portfolio Investment.
- Net worth is as per Section 2(57) of the Companies Act, 2013, taken from the last audited balance sheet.
- Prohibited without specific approval: investment in a foreign entity engaged in real estate activity, gambling in any form, or dealing in financial products linked to the Indian rupee.
- Form FC is submitted through the AD bank at the time of remittance or commitment, whichever is earlier; the AD bank issues a UIN.
- Disinvestment and restructuring are reported within 30 days (confirm).
- APR is filed for each foreign entity by 31 December; where the foreign entity’s year ends 31 December, by 31 December of the next year. If several Indian residents invest in the same entity, the one with the highest stake files.
- Delays in reporting attract Late Submission Fee.
For a step-by-step on setting up a subsidiary, read our overseas subsidiary guide.
3. ECB: borrowing from abroad after the February 2026 reset
The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 were issued on 9 February 2026, published on 16 February 2026, and followed by A.P. (DIR Series) Circular No. 23 of 18 February 2026 revising the forms.
| Topic | Earlier position | Now (as reported) |
|---|---|---|
| Cost | Benchmark plus fixed spread ceiling | All-in-cost ceiling removed; market-based and arm’s length for related parties; for ECBs below 3 years average maturity, the trade credit ceiling applies |
| Borrowers | Limited categories | Wider, including LLPs and restructuring entities |
| Borrowers under investigation or appeal | Restricted | May borrow without prejudice to the outcome, with disclosure in Form ECB-1 |
| Currency | Mainly foreign currency | Foreign currency or INR; conversions permitted |
| Reporting | Monthly Form ECB-2 | Event-based Form ECB-2 within 7 calendar days of month-end of the drawdown or repayment |
| Security creation | AD bank NOC | Reported as no longer required (confirm) |
4. Which door should you use? A quick decision path
5. Seven mistakes to avoid
- Using LRS for a business purpose that belongs under Overseas Investment.
- Computing net worth from an unaudited or stale balance sheet.
- Remitting before obtaining a UIN through Form FC.
- Forgetting the APR when the foreign entity has no profit or no activity.
- Investing in a foreign entity engaged in a prohibited activity.
- Treating an optionally convertible instrument or guarantee as “not an investment”.
- Using pre-2026 ECB templates for pricing and reporting.
Why work with ComplianceKart
ComplianceKart is a boutique practice bringing Chartered Accountants, Company Secretaries and advocates under one roof. Think of a multi-speciality hospital: the physician, the radiologist and the pharmacist read from one patient file, so you never carry reports between buildings. Remitting abroad involves a banker, a tax view, a company law resolution and sometimes a contract with a foreign counterparty. A single team keeps the sequence right: approval, remittance, report, annual filing.
Frequently Asked Questions
What is the LRS limit?
USD 250,000 per resident individual per financial year, covering all permitted current and capital account remittances together.
Is a minor allowed to use LRS?
Yes, through a natural guardian who signs the declarations.
What is the overseas investment limit for a company?
Financial commitment up to 400% of net worth as per the last audited balance sheet, and portfolio investment up to 50%, with prior RBI approval above USD 1 billion in a financial year.
Is there still an all-in-cost ceiling for ECB?
Under the 2026 amendment, the ceiling was removed and replaced by a market-based, arm’s length standard, with the trade credit ceiling for shorter maturities.
When is the APR due?
By 31 December every year for each foreign entity in which ODI is held.
Sources
- FEM (Overseas Investment) Rules, 2022 and Regulations (FEMA 400/2022-RB, 22 August 2022)
- FEM (Borrowing and Lending) (First Amendment) Regulations, 2026 (notification dated 9 February 2026; A.P. (DIR Series) Circular No. 23 dated 18 February 2026)
- RBI Master Direction on Liberalised Remittance Scheme and Income-tax Act, 2025 (Section 394, TCS)
Website: FEMA and NRI compliance services
Email: team@compliancekart.com
Phone: 9959536391
Educational article, last updated 11 November 2026. It is general information, not advice on a specific transaction. FEMA directions change often; confirm the position on the date you act. Items marked (confirm) were reported by secondary sources and should be checked against the RBI or Gazette text.
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