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Consider the following statements regarding the Liberalised Remittance Scheme (LRS):
- LRS allows Indian residents to freely remit up to USD $10,00,000 per financial year for current or capital account transactions.
- Profits made on foreign investments under LRS are not taxable in India.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding the Liberalised Remittance...
The Union Budget 2023 proposes a Tax Collection at Source (TCS) for foreign outward remittance under LRS (other than for Education and medical purpose) of 20% on the entire value.
About the Liberalised Remittance Scheme (LRS):
- LRS allows Indian residents to freely remit up to USD $250,000 per financial year for current or capital account transactions or a combination of both. Any remittance exceeding this limit requires prior permission from the RBI.
- The scheme was introduced on February 4, 2004
- Who can remit funds under LRS?
- Only individual Indian residents, including minors, are permitted to remit funds under LRS.
- Corporates, partnership firms, HUF, trusts, etc., are excluded from its ambit.
- Frequency of Remittances:
- There are no restrictions on the frequency of remittances under LRS.
- Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme.
- Tax liability on profit made: If any profit is made on foreign investments made under LRS, it is taxable in India based on how long the investment was held.
Hence both statements are not correct.
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Community Answer
Consider the following statements regarding the Liberalised Remittance...
The correct answer is option 'D' - Neither 1 nor 2.
Explanation:
1. Statement 1: LRS allows Indian residents to freely remit up to USD $10,00,000 per financial year for current or capital account transactions.
This statement is incorrect. The Liberalised Remittance Scheme (LRS) allows Indian residents to freely remit funds up to a certain limit per financial year for current account transactions, but there are restrictions on capital account transactions. As of now, the limit for remittance under LRS for current account transactions is USD $250,000 per financial year. This means that Indian residents can remit up to USD $250,000 per financial year for purposes such as foreign travel, education, medical treatment, etc. However, for capital account transactions such as investments in foreign securities, immovable property, etc., there are separate limits and restrictions imposed by the Reserve Bank of India (RBI).
2. Statement 2: Profits made on foreign investments under LRS are not taxable in India.
This statement is also incorrect. The taxability of profits made on foreign investments under LRS depends on several factors such as the nature of the investment, the country in which the investment is made, the duration of the investment, etc. In general, any income earned by Indian residents from foreign investments, including profits, dividends, interest, etc., is taxable in India under the Income Tax Act, 1961. However, the taxability may be determined by the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country, if any. The DTAA provides relief from double taxation by allowing the taxpayer to claim a credit for taxes paid in the foreign country or by providing for lower tax rates on certain types of income.
In conclusion, both statements 1 and 2 are incorrect. The Liberalised Remittance Scheme (LRS) allows Indian residents to freely remit up to a certain limit per financial year for current account transactions, and the taxability of profits made on foreign investments under LRS depends on various factors and the provisions of the Double Taxation Avoidance Agreement (DTAA).
Explanation:
1. Statement 1: LRS allows Indian residents to freely remit up to USD $10,00,000 per financial year for current or capital account transactions.
This statement is incorrect. The Liberalised Remittance Scheme (LRS) allows Indian residents to freely remit funds up to a certain limit per financial year for current account transactions, but there are restrictions on capital account transactions. As of now, the limit for remittance under LRS for current account transactions is USD $250,000 per financial year. This means that Indian residents can remit up to USD $250,000 per financial year for purposes such as foreign travel, education, medical treatment, etc. However, for capital account transactions such as investments in foreign securities, immovable property, etc., there are separate limits and restrictions imposed by the Reserve Bank of India (RBI).
2. Statement 2: Profits made on foreign investments under LRS are not taxable in India.
This statement is also incorrect. The taxability of profits made on foreign investments under LRS depends on several factors such as the nature of the investment, the country in which the investment is made, the duration of the investment, etc. In general, any income earned by Indian residents from foreign investments, including profits, dividends, interest, etc., is taxable in India under the Income Tax Act, 1961. However, the taxability may be determined by the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country, if any. The DTAA provides relief from double taxation by allowing the taxpayer to claim a credit for taxes paid in the foreign country or by providing for lower tax rates on certain types of income.
In conclusion, both statements 1 and 2 are incorrect. The Liberalised Remittance Scheme (LRS) allows Indian residents to freely remit up to a certain limit per financial year for current account transactions, and the taxability of profits made on foreign investments under LRS depends on various factors and the provisions of the Double Taxation Avoidance Agreement (DTAA).
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Consider the following statements regarding the Liberalised Remittance Scheme (LRS): LRS allows Indian residents to freely remit up to USD $10,00,000 per financial year for current or capital account transactions. Profits made on foreign investments under LRS are not taxable in India.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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