LRS KYC is the due diligence an authorised dealer performs before sending money abroad for a resident individual under the Liberalised Remittance Scheme. It covers PAN, identity and address verification, a Form A2 declaration, purpose and source-of-funds checks, and TCS collection, within a limit of USD 250,000 per financial year.
Outward remittances have moved from branch counters to apps. Students pay tuition from a phone, families send support abroad, and investors fund overseas brokerage accounts through platforms built on top of authorised dealer banks. The rules behind each transfer did not get lighter as the journey got shorter.
This guide explains the LRS framework as it stands in October 2026, including RBI’s 1 October 2026 circular on Form A2, the TCS changes effective 1 April 2026, the fraud patterns remittance teams see, and a verification flow that holds up to audit.
How the Liberalised Remittance Scheme works
Under LRS, resident individuals, including minors through a natural guardian, may remit up to USD 250,000 per financial year (April to March) for permitted current and capital account transactions, or a combination of both. RBI’s FAQ notes the scheme began in February 2004 with a limit of USD 25,000. Corporates, partnership firms, HUFs, and trusts cannot use it.
Common purposes include education, medical treatment, travel, maintenance of close relatives, gifts, and overseas investment in securities or property.
Several uses are prohibited, including:
- Margin payments or margin calls to overseas exchanges and trading in foreign exchange abroad
- Purchase of FCCBs issued by Indian companies in the overseas secondary market
- Items prohibited under the FEM (Current Account Transactions) Rules, such as lottery tickets and sweepstakes
- Capital account remittances, directly or indirectly, to countries identified by FATF as non-cooperative
- Remittances to individuals and entities identified as posing significant risk of terrorism
For capital account remittances, RBI’s FAQ says the applicant should ordinarily have maintained an account with the bank for at least a year. For new customers, the AD must carry out due diligence on the source of funds, such as reviewing a bank statement or tax return for the previous year. The individual should also designate one AD branch for capital account remittances under the scheme.
Form A2, PAN and the October 2026 circular
Form A2
Form A2 is the remitter’s application and declaration for outward remittance. RBI’s Master Direction on Other Remittance Facilities, updated as on 1 October 2026, requires ADs to obtain Form A2 in physical or digital form for all cross-border remittances, irrespective of value, and to follow KYC guidelines for all transactions.
PAN
PAN is mandatory for LRS transactions made through authorised persons. It is the anchor for tracking the annual limit and for TCS, so a PAN that is inactive, mismatched, or belongs to someone else breaks both.
The 1 October 2026 circular
RBI’s A.P. (DIR Series) Circular No. 23 of 1 October 2026, titled “Online submission of Form A2: Removal of limits on amount of remittance”, revised the approval requirement in Circular No. 12 of 3 July 2024. Internal guidelines for outward remittances based on online or physical Form A2 may now be approved by the Board, or by a Board Committee or Management Committee with delegated powers. Other instructions in the 2024 circular remain unchanged.
For product teams, the practical message is that digital Form A2 and LRS KYC journeys rest on the AD’s internal, approved guidelines. A platform partnering with a bank must design its flow to match those guidelines.
TCS on foreign remittance in 2026
From 1 April 2026, tax collected at source on LRS remittances falls under section 394 of the Income-tax Act, 2025, which replaced section 206C(1G) of the 1961 Act. Budget 2026, presented on 1 February 2026, reduced several rates.
| Purpose | TCS rate from 1 April 2026 (as reported) | Threshold |
|---|---|---|
| Education financed by a loan from a financial institution | Nil | Not applicable |
| Education, self-funded | 2% (earlier 5%) | Above Rs 10 lakh per financial year |
| Medical treatment | 2% (earlier 5%) | Above Rs 10 lakh per financial year |
| Overseas tour package | 2% (earlier 5% and 20% slabs) | No threshold |
| Other LRS purposes, including investment and gifts | 20% | Above Rs 10 lakh per financial year |
These rates come from Budget 2026 coverage and should be confirmed against the enacted Finance Act, 2026 and the Income-tax Rules, 2026 before you configure them. TCS is creditable against the remitter’s tax liability, but errors in PAN or purpose code lead to wrong collection and customer complaints.
Who can offer LRS remittances?
| Entity | Role in LRS | KYC responsibility |
|---|---|---|
| AD Category-I bank | Full range of current and capital account remittances | Primary KYC, Form A2, reporting and TCS |
| AD Category-II entity | Specified current account remittances, within RBI permissions | KYC and Form A2 for transactions it handles |
| Fintech or remittance platform | Customer interface and workflow, partnering with an AD | Collects and verifies data as per the AD’s approved guidelines; the AD remains accountable |
A platform does not become an authorised dealer by partnering with one. The AD’s policies govern the customer journey, and the AD carries the regulatory responsibility.
LRS KYC and AML expectations
Every LRS customer must pass the AD’s customer due diligence under the applicable RBI KYC Directions, 2025, plus FEMA-specific checks:
- Identity and address: Officially valid documents or permitted digital routes, with the customer present or verified remotely through approved methods.
- PAN validity and ownership: PAN must be valid and belong to the remitter.
- Purpose and documentation: Admission letters, invoices, medical estimates, or investment documents, depending on purpose.
- Source of funds: Especially for capital account remittances and new customers.
- Sanctions and PEP screening: Remitter and beneficiary should be screened against applicable sanctions lists, and PEPs flagged for enhanced due diligence.
- Payment message data: Under FATF Recommendation 16, cross-border wire transfers should carry originator and beneficiary information.
- PMLA reporting: Suspicious transactions must be reported to FIU-IND.
Fraud risks in LRS remittances
LRS fraud rarely looks like fraud at the point of transfer. It looks like a legitimate remittance by the wrong person, which is why LRS KYC has to verify the person and not just the documents.
Mule remitters
Individuals are recruited to remit funds on behalf of others, using their own annual limit. Funds often arrive in the remitter’s account shortly before the remittance.
PAN misuse
A stolen or borrowed PAN lets someone remit under another person’s limit and shifts TCS and tax exposure to the victim. Weak PAN-to-person linkage is the core gap.
Split remittances
Large sums are broken across family members or across multiple ADs to stay under internal alerts or the annual limit. Each transaction looks ordinary; the pattern does not.
Purpose misstatement
Investment remittances declared as education or maintenance attract lower scrutiny and lower TCS. Lower 2% rates for education and medical create a direct incentive to misstate purpose.
Account takeover
A legitimate customer’s app account is taken over and used to remit to a new beneficiary.
A verification flow for LRS KYC
A sound LRS KYC flow confirms the person, the PAN, the money, and the purpose before the AD’s systems release funds.
- Verify PAN status and name. Confirm PAN is valid and operative, and that the name matches the applicant.
- Bind PAN to the person. Match the customer’s live selfie against the photo on an officially valid document or DigiLocker record, with liveness detection.
- Reconcile names. Use logic to compare PAN, ID, and bank account names, allowing for initials and spelling variants.
- Verify the funding account. Confirm the source bank account belongs to the remitter, so third-party funding is visible.
- Capture purpose and documents. Tie the purpose code to supporting documents and the TCS rate.
- Screen remitter and beneficiary. Run sanctions and PEP checks through your AML system.
- Check annual usage. Use the remitter’s declaration and the AD’s records to track the USD 250,000 limit.
- Monitor patterns. Flag repeated beneficiaries across unrelated remitters, sudden funding before remittance, and clusters of remittances just below internal thresholds.
Where BeFiSc fits: IDProof supports the identity steps in this flow: PAN verification, Aadhaar routes, DigiLocker, face match, liveness, name match, and bank account verification. These help confirm that the remitter is the PAN holder and owns the funding account. IDProof does not perform sanctions screening, compute TCS, process Form A2, or track LRS limits; those sit with the AD bank and its AML and treasury systems.
Key Takeaways
- LRS allows resident individuals to remit up to USD 250,000 per financial year, with PAN mandatory and Form A2 required for every cross-border remittance.
- RBI’s 1 October 2026 circular lets a Board Committee or Management Committee approve internal Form A2 guidelines.
- From 1 April 2026, TCS falls under section 394 of the Income-tax Act, 2025, with 2% rates reported for education, medical and tour packages; confirm against the enacted text.
- Platforms partnering with ADs must follow the AD’s approved guidelines; accountability stays with the AD.
- Mule remitters, PAN misuse, split remittances and purpose misstatement are the main LRS KYC risks.
Frequently Asked Questions
Can a fintech app offer LRS remittances directly?
A fintech can provide the customer journey, but the remittance must be executed by an authorised dealer. The AD’s board-approved guidelines govern KYC and Form A2, and the AD remains responsible.
What is the TCS on foreign remittance from 1 April 2026?
As reported in Budget 2026, TCS is nil on education financed by a loan from a financial institution, 2% on self-funded education and medical remittances above Rs 10 lakh, 2% on overseas tour packages without a threshold, and 20% on other purposes above Rs 10 lakh. Confirm with a tax adviser.
Is PAN mandatory for LRS remittances?
Yes. RBI’s FAQ on LRS states that PAN is mandatory for LRS transactions through authorised persons. It is also the basis for TCS collection and credit.
What is the LRS limit in 2026?
The limit is USD 250,000 per financial year for resident individuals, covering permitted current and capital account transactions combined. Amounts above this need prior RBI approval.
Conclusion
LRS KYC sits where FEMA, PMLA and tax rules meet. As remittances move to apps, the highest risk is not an invalid document but a valid document used by the wrong person.
ADs and their platform partners that bind PAN to a verified, live person, verify the funding account, and watch for split patterns will meet the rules and keep mule remitters out.
