Three sets of rules decide how money leaves India for investment, what happens when it does, and how you report it afterwards. Here they are, in the order you meet them.
1. LRS: how much you can send
Under the RBI’s Liberalised Remittance Scheme, a resident individual can remit up to $250,000 per financial year (April–March) without prior approval. The limit is per person and covers all purposes together: investment, education, travel, gifts and medical expenses. Each family member has their own limit, so a family of four can send up to $1 million in a year. Unused limits do not carry forward.
You remit through your bank by submitting Form A2 with the purpose of overseas investment. Your PAN must be linked to Aadhaar.
2. TCS: the tax collected when you send
Banks collect tax at source on LRS remittances. For overseas investment, the rules from 1 April 2026 are:
| Purpose | TCS-free each year | TCS above that |
|---|---|---|
| Investment (shares, ETFs, funds) | ₹10 lakh | 20% |
| Education, not loan-funded | ₹10 lakh | 2% |
| Education, loan-funded | ₹10 lakh | Nil |
| Medical treatment | ₹10 lakh | 2% |
| Overseas tour packages | None | 2% |
The ₹10 lakh threshold is shared across purposes, apart from tour packages. TCS is not an extra tax. It is an advance credit you adjust against your income tax when you file your return, and any excess comes back as a refund. It does tie up cash for months, which is why we plan the size and timing of remittances.
3. Tax on what you earn abroad
- Capital gains: foreign shares and ETFs held for more than 24 months are long-term and taxed at 12.5% plus surcharge and cess. Shorter holdings are taxed at your slab rate. The ₹1.25 lakh exemption for listed Indian equity does not apply.
- Dividends: the US withholds 25% for Indian residents who file Form W-8BEN. The dividend is taxed in India at your slab rate, and the US tax is claimed as a foreign tax credit using Form 67.
4. Schedule FA: reporting what you hold
If you are resident and ordinarily resident, you must disclose every foreign asset in Schedule FA of your return, even if it earned nothing. Schedule FA follows the calendar year (January–December), not the financial year. Foreign income goes in Schedule FSI, and foreign tax relief in Schedule TR. You will need ITR-2 or ITR-3; ITR-1 and ITR-4 don’t allow it.
Missing it is expensive. The Black Money Act provides for a penalty of ₹10 lakh per year of non-disclosure. Since 1 October 2024, that penalty does not apply where the total value of foreign assets other than immovable property is below ₹20 lakh, but the disclosure is still required.
The checklist
- Track LRS use across all family members and banks.
- Keep every Form A2 and the bank’s TCS certificate (Form 27D).
- File Form W-8BEN with your broker and keep it current.
- Download your broker’s annual statements: holdings, dividends, tax withheld and trades.
- File ITR-2 or ITR-3 with Schedules FA, FSI and TR, and Form 67 before the return.
Tax rules change with every Budget. Use this as a map, and confirm the current position with your CA each year. Meridian Capital clients get an annual summary that covers all of the above.