Unused LRS Headroom and Three Requests at One Counter
Raghav Menon, 34, is a salaried resident of Bengaluru. In FY 2025-26 he has already remitted USD 58,000 under the Liberalised Remittance Scheme through his bank, for a family holiday and a sibling's tuition. In a single branch visit he makes three requests. First, he wants to send USD 25,000 to an offshore brokerage to top up margin on a leveraged spot-forex and CFD account he opened online last month. Second, his cousin, who owns a proprietorship importing bicycle parts, has asked Raghav to remit USD 40,000 to a Taiwanese supplier "out of your LRS quota", because the firm's own bank is slow. Third, for his own investment in an overseas mutual fund he needs USD 45,000, but proposes to break it into six transfers of USD 7,500 across two banks and three weeks, so that each transfer stays below the cash-collection threshold and no TCS is deducted. He asks the branch to process all three the same day, adding that the cousin will reimburse him the rupee equivalent in cash.
1. Can the branch remit USD 25,000 to the offshore brokerage for margin on the leveraged forex and CFD account? Explain the rule and what the branch should tell Mr. Menon.
Read the worked answer
No. The LRS permits resident individuals to remit for specified current and capital account transactions. Remittances for margin calls, and payments connected with trading in foreign exchange or leveraged overseas derivative products, are outside that permitted list. What matters is the purpose of the payment, not how the platform describes itself as a "research" or "investment" service.
The branch should:
- decline the transaction and record the refusal with reasons;
- refuse to re-label the purpose code, because a false declaration is itself a FEMA contravention and exposes the bank;
- explain that remitting to an unregulated offshore platform also leaves him without Indian legal recourse;
- escalate the request internally, since repeated attempts to push such remittances are a suspicious-transaction indicator.
His unused LRS headroom is irrelevant. An unspent quota does not convert an impermissible purpose into a permissible one.
2. The cousin wants the USD 40,000 import payment routed through Mr. Menon's LRS quota. Assess the request and the bank's position.
Read the worked answer
This cannot be done. The LRS is person-specific: it belongs to the resident individual and covers transactions permitted to that individual, including maintenance of close relatives. An import payment is a trade transaction of the proprietorship and must be routed through the firm's own authorised dealer under the goods-import framework: IEC, commercial invoice, transport documents, import declaration and the firm's KYC. Mr. Menon has no underlying import and will not own the goods.
Routing it through his quota would be a third-party remittance and a contravention by him and, if knowingly processed, by the bank. The cousin's cash reimbursement does not regularise it; it is itself a classic indicator of an accommodation arrangement. The branch should decline, direct the cousin to his own bank (delay there is not a legal excuse), and record the request. A repeat pattern with the same customer warrants a vigilance or STR referral.
3. Does splitting the USD 45,000 into six transfers of USD 7,500 achieve the stated aim? What should the bank do?
Read the worked answer
The split does not work. TCS under section 206C(1G) is levied on the aggregate amount remitted under the LRS in a financial year once the aggregate crosses the prescribed threshold; it is not assessed transfer by transfer. Banks aggregate using the customer's PAN and the declaration the customer gives about remittances made through other dealers, and LRS usage is tracked per PAN.
Six transfers of USD 7,500 add up to USD 45,000 in the same year and the same PAN, so the aggregate still crosses the threshold and TCS is deductible on the excess at the applicable rate. Spreading the transfers across banks and weeks converts an honest tax computation into deliberate structuring; the bank must still deduct on aggregate, must obtain the other-bank declaration, and repeated micro-transfers can trigger an internal suspicion report.
The underlying investment in an overseas fund, within the LRS ceiling, is itself permissible. The problem is only the fragmentation, and the fix is to compute TCS honestly rather than break up the payment.