In a strategic move to safeguard India’s capital flow integrity, the Reserve Bank of India (RBI) is preparing to amend its Liberalised Remittance Scheme (LRS), placing tighter controls on the way resident Indians send money overseas. The key focus of the amendment? To prevent the use of overseas remittances for foreign currency deposits that involve lock-in periods — a financial strategy increasingly seen as a tool for passive wealth parking abroad.
The regulatory tightening comes in response to a significant surge in foreign currency deposits, which jumped from $51.62 million in February to a striking $173.2 million in March 2025. This spike, according to financial analysts, is closely linked to year-end tax strategies and capital movement behavior traditionally observed at the close of India’s financial year.
Currently, the LRS allows resident individuals to remit up to $250,000 per financial year for purposes ranging from foreign education and travel to medical treatment and investments. However, recent patterns have raised red flags for the central bank. Some individuals, exploiting grey areas in the policy, have been funneling funds into interest-bearing accounts overseas under indirect or altered names — effectively using LRS as a gateway for passive capital export.
“This is akin to passive wealth shifting, which is a red flag for the RBI in a still-controlled capital regime,” a source familiar with the matter told Reuters.
While outward remittances under LRS dipped slightly to $30 billion in FY 2024–25, the RBI remains wary of trends that may indicate misuse. Experts caution that although March often brings an uptick in overseas transfers due to last-minute tax planning, the sheer magnitude of deposits this year underscores the urgency for regulatory refinement.
Why This Move Matters
India maintains a partial capital account convertibility policy, meaning that the flow of capital into and out of the country is still subject to controls. Allowing residents to use LRS for parking money in overseas fixed deposits or interest-earning accounts — especially those with lock-in periods — could eventually erode foreign exchange reserves and introduce currency volatility, something the RBI is keen to avoid amid global financial uncertainties.
“This move addresses a growing misuse of the scheme as a vehicle for passive capital export,” said a second official aware of the internal deliberations.
Strengthening the LRS Framework
The planned amendment is part of a broader review of the LRS legal framework, aimed at both simplifying procedures for legitimate remitters and plugging loopholes that may enable roundabout wealth transfers. The RBI’s latest annual report also underscored the need to align the remittance framework with India’s evolving economic landscape, especially as the nation treads cautiously on the path toward fuller capital convertibility.
By barring the use of LRS funds for fixed, interest-yielding foreign accounts, the RBI is drawing a clear line between legitimate overseas expenditure and disguised capital relocation. The change is expected to hit those using complex financial arrangements to remit funds under one purpose and later divert them toward investment-like instruments abroad.
What It Means for Resident Indians
As the regulatory landscape shifts, it becomes crucial for resident individuals to stay updated on LRS guidelines, especially those involved in overseas investments or education funding. While the scheme still allows for genuine foreign spending — such as tuition fees, medical bills, and business travel — the central bank is clamping down on remittances that don’t serve an immediate consumption or investment purpose.
For high net-worth individuals and wealth managers, this move signals the need to rethink international asset strategies. It also highlights RBI’s continued focus on financial prudence and macroeconomic stability, as the global economy remains vulnerable to inflation shocks, interest rate volatility, and geopolitical tension.
A Balanced, Forward-Looking Policy Shift
The RBI’s proposed changes represent a balanced approach — enabling financial freedom while ensuring that India’s capital controls remain effective. At a time when global financial systems are under stress, India is choosing vigilance over vulnerability.
As implementation unfolds, clarity is expected in the form of detailed notifications, likely outlining permitted instruments, penalties for violations, and transitional arrangements for those with existing foreign deposits.
Ultimately, this policy update serves as a reminder: the freedom to remit comes with responsibility. And the RBI is making sure that every dollar sent out of the country serves a purpose rooted in growth, not in loopholes.
