Step-by-Step Guide: Transferring Large Sums US to India under LRS Compliance

Banks and money transfer firms say they’re seeing more customers try to move sums over $10,000 from the United States 🇺🇸 to India, asking a simple question with a complicated answer: does the Liberalised Remittance Scheme apply, and what does full RBI compliance look like for a large transfer?

The starting point is clear. The Liberalised Remittance Scheme (LRS)—capped at USD 250,000 per financial year (April–March)—is a Reserve Bank of India framework for outward remittances by resident Indians. It sets the limit and the rules when money goes out of India for allowed uses such as education, medical care, investments, or gifts.

But when money comes into India from abroad, banks in India don’t enforce an LRS cap; instead, they must verify the source, check the stated purpose, and follow strict KYC/AML controls. This distinction matters most on transfers above $10,000, where banks perform extra checks and file reports to regulators and tax authorities as required.

Key distinctions: outward vs inward flows

• LRS applies to outward remittances from India. It sets the USD 250,000 annual ceiling and requires specific paperwork when a resident Indian sends money abroad.
• Inbound remittances are not capped by LRS. Instead, beneficiary banks in India apply source-of-funds checks, purpose verification, and AML/KYC screening.
• Transfers above $10,000 generally prompt enhanced scrutiny, additional documentation, and mandatory reporting to regulators.

The most common confusion is mixing up outward and inward rules under the same label. LRS governs outward flows; inbound flows follow RBI and AML checks without an LRS annual cap.

Core steps for a large transfer (overview)

A sender or recipient must typically:

1. Work with an RBI-authorized dealer (AD Category‑I bank) or a licensed remittance platform.
2. Complete Form A2 and declare the purpose code (for outward transfers under LRS).
3. Provide a PAN and any purpose-based documents.
4. Allow the bank to run KYC and AML checks.
5. For outward transfers exceeding INR 7 lakh (~$9,000), the authorized dealer collects 5% Tax Collected at Source (TCS) at the time of remittance (refundable via income-tax returns).
6. Expect banks to convert and settle funds typically within 1–3 business days after compliance clearance.
7. Banks will report transactions above $10,000 and keep records per regulatory rules.

Transfers to FATF-flagged non-cooperative countries are not allowed under LRS, and certain capital-account moves or amounts beyond the LRS cap require prior RBI approval.

Choosing the right channel and initial checks

• Use an AD Category‑I bank or a licensed remittance platform that complies with Indian and U.S. rules.
• Many customers start with their home bank in the sending country; the beneficiary bank in India still plays a central role when funds arrive.
• Banks often have dedicated cross‑border teams to handle:
  • Purpose codes
  • KYC and sanctions screening
  • TCS collection (when applicable)

At the start, both sender and beneficiary should expect to answer questions about:

• Source of funds
• Reason for transfer
• Parties involved

Examples of supporting documents banks may request:
– Education: admission letter and fee schedule
– Medical: hospital estimate
– Gift: declaration stating relationship to recipient
– Investment: brief declaration describing the investment

Outward remittances from India — paperwork and checks

When sending money out of India under LRS:

• Fill Form A2—a declaration stating the purpose and confirming compliance with LRS.
• Provide PAN and any purpose-specific proof.
• For transfers above $10,000, expect more thorough compliance checks:
  • Review of the RBI purpose code
  • Cross-checking of KYC data
  • AML filtering and potential follow-up questions
  • Confirmation that cumulative remittances do not exceed USD 250,000 in the financial year

If the transfer is for investment, education, or medical care, the bank may request additional clarifying documents or declarations. Any red flags (mismatched documents, unclear sources, or unusual routing) can delay release until resolved.

Inward remittances to India — beneficiary bank checks

• The beneficiary’s bank verifies identity, source of funds, and purpose.
• The beneficiary may need to provide ID and evidence/explanation for the credit (e.g., “family maintenance”, “gift from parent”, “invoice payment”).
• Many beneficiaries request a Foreign Inward Remittance Certificate (FIRC) after credit as proof of receipt.
• RBI and AML rules require this documentation trail to support tax or regulatory inquiries if needed later.

Policy framework and scope (highlights)

• LRS limit: USD 250,000 per resident individual per financial year for outward remittances.
• Mandatory items for outward remittances: Form A2, PAN, and an RBI purpose code.
• TCS rule: 5% TCS on outward remittances exceeding INR 7 lakh in a financial year—collected at remittance time and claimable via tax filing.
• Inbound flows: No LRS cap, but strict KYC/AML and purpose verification apply.
• Large transfers (> $10,000): Banks refresh KYC, perform enhanced AML screening, and file regulatory reports.
• Prohibited jurisdictions: Transfers to FATF non-cooperative jurisdictions are not allowed under LRS.

Step‑by‑step process for transfers above $10,000

1. Choose an RBI‑authorized channel
   • AD Category‑I bank or licensed remittance platform.
   • If initiating in the U.S., pick a provider that meets both U.S. and Indian compliance standards.
2. Prepare paperwork
   • Complete Form A2: official form available here: Form A2 (RBI)
   • Provide PAN
   • Gather purpose documents:
     • Education: admission letter, fee schedule
     • Medical: hospital estimate
     • Investment: declaration describing investment
     • Gift: declaration of relationship
3. State correct purpose code
   • Bank will record RBI purpose code—ensure it aligns with the documents.
4. Expect bank compliance checks
   • KYC and AML screening; more scrutiny above $10,000.
   • For outward remittances, bank verifies annual LRS cap and permitted use.
5. Prepare for TCS
   • 5% TCS collected at remittance for outward flows beyond INR 7 lakh.
6. Transfer and settlement
   • After compliance, banks typically convert and send funds within 1–3 business days.
7. Reporting and records
   • Banks report transactions above $10,000 to RBI/tax authorities.
   • Keep copies: Form A2, PAN, purpose documents, and receipts.
8. Special checks
   • If the transfer exceeds USD 250,000 or involves capital-account items, prior RBI approval may be required.
   • Transfers to FATF-flagged jurisdictions are prohibited under LRS.
9. Inward remittances
   • Beneficiary’s bank verifies identity, source and purpose.
   • Beneficiary can request a FIRC after credit.

Compliance, taxes, and reporting: what to expect

• The USD 250,000 LRS limit is a firm ceiling for outward remittances unless prior RBI approval applies.
• 5% TCS on outward remittances beyond INR 7 lakh is collected upfront; it can be reclaimed in an income‑tax return.
• Banks must file reports on transactions above $10,000 to RBI and tax authorities—these reports are routine compliance, not an automatic sign of wrongdoing.
• Purpose codes are essential: they tell regulators what the money is for. If purpose changes, documents and the code must be updated.
• Banks monitor routing and destination countries; intermediaries and third‑country routes can attract extra scrutiny.

Important: The INR 7 lakh threshold is measured cumulatively over the financial year. Multiple smaller transfers that add up to the threshold will trigger TCS once crossed.

Practical advice to avoid delays

• Provide clear, consistent information at the start: mismatched purpose descriptions or missing supporting documents are the most common causes of delays.
• Keep a neat packet: Form A2, PAN, correct purpose code, and supporting documents move faster.
• Ask the bank to pre‑check routing and destination if you suspect a third‑country intermediary.
• For large or time‑sensitive needs (student fees, medical bills), start compliance conversations early.

Scenario examples

• Indian resident sending money abroad for education under LRS:
  • Pick AD Category‑I bank → fill Form A2 → provide admission letter & fee schedule → ensure correct purpose code → watch cumulative LRS limit (USD 250,000) → plan for 5% TCS if INR 7 lakh is crossed.
• Parent abroad sending $12,000 to India for family maintenance:
  • Use compliant transfer service → beneficiary’s Indian bank verifies source and purpose → account credited → beneficiary can request FIRC. No LRS cap applies on inbound flow, but AML/KYC checks will apply.

Record‑keeping and patterns

• Keep copies of Form A2, PAN, purpose documents, and transaction receipts.
• Banks keep logs and file reports; a personal file supports tax filing and future transfers.
• Avoid splitting transfers purely to dodge reporting or TCS—banks monitor patterns across time and the cumulative LRS threshold is what matters.

When transfers exceed the LRS cap

• Transfers above USD 250,000 will typically be paused until prior RBI approval is obtained if required.
• Not all exceptions are approved; discuss plans early with the authorized dealer.
• Large investments or high-cost medical procedures should be planned well ahead of deadlines to secure necessary approvals.

How the rules protect senders and recipients

• KYC, AML and purpose checks reduce fraud risk and help ensure funds are not seized or reversed later.
• Matching purpose, documents, and beneficiary details protects both parties—especially for sums above $10,000, where a second look is routine.

Quick checklist (actionable)

• Use an AD Category‑I bank or licensed platform that follows RBI rules.
• For outward transfers from India under LRS:
  • Complete and sign Form A2.
  • Provide PAN.
  • Attach purpose documents (admission letter/fee schedule, hospital estimate, investment note, gift declaration).
  • Confirm the correct RBI purpose code.
  • Expect KYC/AML checks and answer queries promptly.
  • Plan for 5% TCS once cumulative outward remittances exceed INR 7 lakh in the financial year.
  • Allow 1–3 business days for settlement after compliance clears.
  • Keep all records.
• For inward flows:
  • Comply with beneficiary bank’s source‑of‑funds and purpose checks.
  • Ask for a FIRC if proof of receipt is needed.
• Avoid prohibited corridors under LRS and seek prior approval for transfers exceeding the LRS cap or involving capital-account rules.

Final practical takeaway

For anyone planning to move more than $10,000 between the U.S. and India:

• Pick a compliant channel.
• For outward remittances under LRS: complete Form A2, provide PAN and purpose documents, and use the correct purpose code.
• Expect KYC and AML questions, especially for large amounts.
• Plan for 5% TCS beyond INR 7 lakh (claimable at tax time).
• Expect 1–3 business days after compliance clearance.
• Keep every receipt and document.
• If your transaction exceeds USD 250,000 or involves special capital transactions, talk to your bank early about prior RBI approval.

The playbook is detailed but not difficult: follow the authorized route, provide the right documents, answer questions clearly, and you’ll keep transfers smooth while meeting RBI compliance and tax requirements.