Foreign exchange rules in India — what residents and NRIs need to know

The framework

Foreign exchange in and out of India is governed by the Foreign Exchange Management Act, 1999 (FEMA), administered by the Reserve Bank of India through authorised dealers (mostly banks) and full-fledged money changers (FFMCs). Anything described here can be transacted only through an authorised dealer or FFMC — never through informal channels.

This article focuses on what a person resident in India (as defined under FEMA — broadly, someone who has lived in India for more than 182 days in the preceding financial year, with some nuances) can do. NRIs operate under a different set of rules; for NRI-specific banking see our NRE/NRO/FCNR articles.

The Liberalised Remittance Scheme (LRS) — the main workhorse

LRS is the umbrella facility under which resident individuals (including minors, through a guardian) can remit money out of India.

Annual limit: USD 250,000 per financial year (April–March) per individual. This is aggregate across all permissible current and capital account purposes combined.
Multiple drawings allowed within the limit — the old "once a year" restriction from the 2004 rules has been gone for years.
PAN is mandatory for any LRS transaction.
Per-family, not per-person pooling: each family member has their own USD 250,000, which is how larger outward transfers (for a foreign property purchase, say) are usually structured.

What LRS covers

Private travel and tourism abroad.
Business trips.
Medical treatment abroad.
Education (tuition, living costs, maintenance).
Gifts and donations to non-residents (individuals and eligible institutions).
Employment or emigration outward remittances.
Investment abroad — foreign shares, mutual funds, property, debt instruments (subject to their own conditions).
Maintenance of close relatives abroad.

What LRS does not cover

Purposes prohibited under Schedule I of the FEM (Current Account Transactions) Rules, 2000 — e.g. remittance out of lottery winnings, racing winnings, or for the purchase of lottery tickets or prohibited magazines.
Purposes restricted under Schedule II — which require prior RBI or Government approval (e.g. certain cultural tours).
Remittances to FATF non-cooperative jurisdictions or entities on the RBI/UN sanctions list.
Margin/margin calls for overseas exchanges, or capital-account transactions into countries/instruments otherwise prohibited.
Paying for or earning "immigration points" — remittances to become eligible for, or to gain credits towards, immigration still require prior RBI permission.

TCS on LRS remittances

This is the single most important practical change in recent years and often surprises residents used to the old rules.

Under Section 206C(1G) of the Income-tax Act, authorised dealers must collect Tax Collected at Source (TCS) on LRS remittances, at rates that depend on the purpose and amount:

Purpose	TCS rate
Education funded by an education loan	0.5% on amount above ₹7 lakh in a financial year
Education (self-funded) and medical treatment	5% on amount above ₹7 lakh in a financial year
Overseas tour package (including through Indian tour operators)	5% up to ₹7 lakh; 20% above
All other LRS remittances	Nil up to ₹7 lakh; 20% above ₹7 lakh

Key points about TCS:

TCS is not a tax — it's a collection. You get credit for it against your annual income-tax liability, so if you file returns normally it is ultimately adjusted or refunded.
The ₹7 lakh threshold is per financial year, aggregated across all remittances at all authorised dealers (they look at your PAN).
Keep the TCS certificates (Form 27D) issued by the bank — you'll need them when filing your return.

Travel-related forex

Private visits (tourism, family visits)

There is no longer a separate "Basic Travel Quota" or $10,000 tourist limit. Private travel forex is now drawn under the LRS limit of USD 250,000 per financial year.

No foreign exchange is available for visits to Nepal and Bhutan — these remain rupee-settled destinations.

Business trips, conferences, medical check-ups

Also covered under LRS. For business trips specifically, the authorised dealer will release forex against a self-declaration and supporting documents (company letter, invitation, etc.).

Medical treatment

Up to USD 250,000 on self-declaration under LRS.
Amounts beyond USD 250,000 are permitted if supported by an estimate from a hospital or specialist (in India or abroad). There is no upper cap in that case.
An attendant accompanying a patient can draw up to USD 250,000 in the same financial year under their own LRS limit.

Education abroad

Tuition and fees can be remitted as estimated by the foreign educational institution — amounts exceeding USD 250,000 may be permitted based on the estimate from the institution.
Maintenance up to USD 250,000 per FY separately under LRS.
Students abroad are treated as NRIs under FEMA once they leave India for studies, which opens NRE/NRO/FCNR accounts and associated facilities.
TCS impact: education remittances get the concessional 0.5% / 5% rates described above.

Employment and emigration

On self-declaration basis, up to USD 250,000 for employment or emigration-related expenses — to meet incidental costs in the destination country.
Again: no amount can be remitted to qualify for immigration (to meet investor-visa thresholds, points-based minimums, etc.) without prior RBI approval.

Gifts and donations

Gifts to non-residents, and donations to eligible overseas institutions, are also under the overall LRS USD 250,000 annual limit per individual. The old USD 5,000 sub-limit from the 2004 rules no longer applies.

Currency notes — what you can carry

Going out of India

Residents can carry foreign currency notes and coins up to USD 3,000 (or equivalent) per visit. The balance of any drawn forex must be in the form of a forex prepaid card, banker's draft, or similar.
Exceptions for full-cash release: travellers going to Iran, the Russian Federation, and other Commonwealth of Independent States (CIS) countries may draw the entire amount in foreign currency notes. Iraq and Libya have historically allowed up to USD 5,000 in currency.
Residents may also carry up to ₹25,000 in Indian currency notes out of India (and bring the same back). Indian currency cannot be taken to or from Nepal/Bhutan in denominations above ₹100.

Coming into India

No limit on the total foreign exchange that can be brought in.
Declaration required if aggregate foreign exchange exceeds USD 10,000 or equivalent, or if foreign currency notes/coins alone exceed USD 5,000 or equivalent. File the Currency Declaration Form (CDF) with Customs on arrival. Skipping this when required is a FEMA contravention and the excess can be seized.
Indian currency: up to ₹25,000 per person can be brought in.

On return

Unspent foreign currency notes must be surrendered to an authorised dealer within 90 days of return.
Up to USD 2,000 equivalent may be retained indefinitely for future use, or credited to an RFC (Domestic) account with no upper limit.
Traveller's cheques (largely obsolete today) have a 180-day surrender window.

Foreign currency accounts residents can hold in India

Three account types let residents hold foreign currency legitimately within India:

EEFC (Exchange Earners' Foreign Currency) account

For residents with genuine foreign exchange earnings (exporters, freelancers billing abroad, consultants). Funds received from abroad can be parked in an EEFC account without conversion to rupees. Current rules allow 100% of eligible foreign exchange earnings to be credited, subject to the requirement that balances are converted to rupees on or before the last day of the month following the month of credit, unless used for permissible purposes. Useful for avoiding round-trip conversion losses when you earn and spend in the same currency.

RFC (Resident Foreign Currency) account

For returning Indians who were NRIs and have returned to India for permanent residence. They can park their foreign assets in an RFC account indefinitely, hold them in foreign currency, and use them without the usual restrictions on resident foreign-currency transactions.

Credits allowed include balances held in NRE/FCNR accounts at the time of return, foreign pensions, proceeds of assets held abroad, and inheritances or gifts received from overseas.

RFC (Domestic) account

Open to any resident, not just returning NRIs. You can credit foreign currency acquired legitimately as a resident — e.g. unspent forex after a foreign trip, honoraria received abroad, gifts from non-residents received in forex, fees for services rendered to non-residents in qualifying circumstances. The account is non-interest bearing in most banks and is meant as a parking facility.

Holding foreign assets — Section 6(4)

Under Section 6(4) of FEMA, a resident is free to continue to hold, own, transfer, or invest in foreign currency, foreign securities, or foreign immovable property acquired when the person was a non-resident, or acquired by inheritance from a non-resident. This is the legal basis that lets returning Indians keep US 401(k) balances, UK pensions, Canadian GICs, and overseas property without being forced to repatriate them.

New investments made after becoming resident need to fit under LRS or a specific RBI scheme (ODI — Overseas Direct Investment, for example) and cannot simply ride on Section 6(4).

Cards, cash payments, and other practical points

International debit and credit cards issued by Indian banks can be used abroad for travel, online purchases, and foreign subscriptions, within the card's limit and the account-holder's LRS entitlement. Use in Nepal and Bhutan is not permitted.
International credit card spending while abroad has long been an anomaly: historically it sat outside LRS. A 2023 amendment sought to bring it inside LRS, but implementation was deferred. Treat this as a moving target — check the current position with your bank before assuming card spends abroad are outside the LRS cap.
Forex prepaid cards have largely replaced traveller's cheques for carrying spending money abroad. They are loaded against your LRS entitlement and can be topped up while travelling.
Rupee cash payments for purchase of foreign exchange from a bank or money changer: only up to ₹50,000. Beyond that the payment must be by cheque, pay order, demand draft, or electronic transfer.
Forex purchased and not used within 60 days must be surrendered to an authorised dealer.
Gift parcels abroad: residents can send gift articles up to a value of ₹5,00,000 in a financial year, subject to the item not being prohibited under the EXIM Policy. (This is a separate limit from the monetary LRS remittance limit.)
Non-residents visiting India: a resident is free to pay in rupees towards their hospitality — boarding, lodging, travel within India.

A checklist before you remit

Confirm the purpose is permitted under LRS (or covered by a specific facility beyond LRS).
Aggregate what you've already remitted in this financial year across all your banks — the USD 250,000 is a shared limit tied to your PAN.
Factor in TCS at the applicable rate if you are over the ₹7 lakh threshold, and budget for the cash outflow (you'll get credit later).
Submit Form A2 at the authorised dealer along with supporting documents for the purpose of the remittance.
Keep a copy of the A2, the TCS certificate (Form 27D) and the bank's outward remittance advice — you'll want these when filing your return and, if relevant, reporting foreign assets on Schedule FA.

Bottom line

The 2004-era rules that capped travel at a few thousand dollars are long gone. LRS gives every resident a broad USD 250,000 per-year envelope for almost any legitimate foreign-currency need. The tightening that has happened instead is on visibility — PAN-tied aggregation, TCS collection, and annual Schedule FA reporting. The practical discipline for residents today is less about permission and more about record-keeping: every remittance leaves a trail, and your annual tax return is where those trails have to reconcile.