Chapter 2: Liberalized Remittance Scheme (LRS) and Other Remittance Facilities for Residents (CAIIB – Paper 2)

1. Which of the following is a Current Account Transaction under FEMA?

• A. Payment for import of goods
• B. Investment in foreign equity shares
• C. Acquisition of property outside India
• D. Transfer of immovable property in India to a non-resident

Current Account Transactions include payments related to trade, services, and remittances like import/export of goods, travel, education, medical expenses, etc. Capital Account Transactions involve creation/transfer of assets and liabilities.

2. Which of the following is NOT a Capital Account Transaction?

• A. Borrowing from a non-resident
• B. Transfer of immovable property abroad
• C. Investment in foreign securities
• D. Remittance for education abroad

Remittance for education abroad is a Current Account Transaction, as it relates to payment of services. Borrowing, investment abroad, and property transfer are Capital Account Transactions.

3. Under FEMA, which authority regulates Capital Account Transactions?

• A. Ministry of Finance
• B. Reserve Bank of India
• C. SEBI
• D. Ministry of Commerce

FEMA empowers RBI to regulate Capital Account Transactions, while Central Government regulates Current Account Transactions in consultation with RBI.

4. Which of the following qualifies as a Capital Account Transaction?

• A. Remittance of dividends
• B. Payment of interest on ECB
• C. Purchase of property abroad
• D. Import of raw materials

Purchase of property abroad involves creation of assets outside India, hence it is a Capital Account Transaction. Dividends, interest, and imports fall under Current Account Transactions.

5. As per FEMA, which of the following is classified as a Current Account Transaction?

• A. Investment in equity shares of a foreign company
• B. Purchase of immovable property in London
• C. Lending money to a person outside India
• D. Remittance of living expenses for a student abroad

Remittance of living expenses for students abroad is a Current Account Transaction as it covers payment for services. Investments, property purchases, and lending are Capital Account Transactions.

6. Which statement correctly differentiates Capital and Current Account Transactions?

• A. Capital account involves change in assets/liabilities, Current account relates to trade and services
• B. Capital account covers imports/exports, Current account covers investments abroad
• C. Both accounts are regulated only by the Ministry of Finance
• D. Capital account covers travel remittances, Current account covers property transactions

Capital Account Transactions = changes in assets/liabilities across borders (e.g., loans, investments, property). Current Account Transactions = trade in goods, services, income, remittances.

7. Under FEMA, which section empowers the Central Government to regulate Current Account Transactions?

• A. Section 5
• B. Section 7
• C. Section 5 read with Section 46
• D. Section 6

Section 5 of FEMA deals with Current Account Transactions, while Section 46 empowers the Central Government to make rules. Together, they form the basis for regulating Current Account Transactions such as remittances under LRS.

8. Which section of FEMA governs Capital Account Transactions that directly impact the LRS framework?

• A. Section 6
• B. Section 10
• C. Section 3
• D. Section 13

Section 6 of FEMA governs Capital Account Transactions, which are crucial under LRS since residents can invest abroad, purchase property, or transfer assets within prescribed limits.

9. Which section of FEMA empowers RBI to issue regulations that form the operational framework for LRS?

• A. Section 12
• B. Section 3
• C. Section 46
• D. Section 47

Section 47 of FEMA empowers RBI to frame regulations to implement FEMA provisions. Under this power, RBI issues detailed guidelines for LRS including permissible limits and purposes.

10. Which of the following is true about Section 3 of FEMA in context of LRS?

• A. It deals with adjudication of contraventions under FEMA.
• B. It prohibits dealing in foreign exchange except as permitted by FEMA.
• C. It defines the term "Capital Account Transaction".
• D. It empowers Central Government to make rules.

Section 3 of FEMA prohibits dealing in or transferring foreign exchange except as permitted. Under LRS, residents are allowed to remit foreign exchange within prescribed limits.

11. Which FEMA section deals with penalties for contravention of LRS provisions?

• A. Section 7
• B. Section 47
• C. Section 13
• D. Section 46

Section 13 of FEMA prescribes penalties for contraventions, including those related to misuse or violation of LRS provisions.

12. Which of the following is a permissible remittance under LRS?

• A. Remittance for margin trading in overseas forex markets
• B. Remittance for education abroad
• C. Remittance for lottery winnings abroad
• D. Remittance for purchase of prohibited items abroad

Education abroad is a permissible remittance under LRS. Margin trading, lottery winnings, and prohibited items are specifically non-permissible.

13. Which of the following is NOT permitted under LRS?

• A. Remittance for purchase of lottery tickets
• B. Remittance for maintenance of close relatives abroad
• C. Remittance for medical treatment abroad
• D. Remittance towards gifts and donations

LRS does not allow remittances for lottery tickets, banned magazines, or sweepstakes. Education, medical treatment, gifts, and maintenance of relatives are permissible.

14. A resident individual wants to remit USD 20,000 for overseas medical treatment. Is this allowed under LRS?

• A. No, medical remittances are fully prohibited
• B. Yes, but only if limit is USD 10,000
• C. No, only travel and education are permitted
• D. Yes, it is fully permissible within the LRS limit

Medical treatment abroad is fully permissible under LRS, subject to the overall limit of USD 250,000 per financial year.

15. Which of the following is a non-permissible use of LRS remittance?

• A. Purchase of property abroad
• B. Maintenance of close relatives abroad
• C. Remittance for purchase of FCCBs issued by Indian companies overseas
• D. Investment in shares of foreign companies

Investment in FCCBs (Foreign Currency Convertible Bonds) of Indian companies is specifically prohibited under LRS. Investments abroad, property purchase, and maintenance remittances are permitted.

16. Which of the following outward remittances is specifically prohibited under LRS?

• A. Remittance for margin calls in derivatives trading abroad
• B. Remittance for studying in a foreign university
• C. Remittance for gifts and donations abroad
• D. Remittance for medical insurance premium abroad

Remittances for margin calls, trading in overseas forex markets, or speculation are prohibited under LRS. Education, medical, and donations are permitted within the overall limit.

17. Mr. Sharma remitted USD 100,000 for his daughter’s education abroad in June 2025. In January 2026, he wants to remit another USD 175,000 for purchasing property abroad. Is this fully permissible under LRS?

• A. Yes, since education and property remittances are always unlimited
• B. Yes, because the property remittance is below USD 250,000
• C. No, because the total would exceed the USD 250,000 annual LRS limit
• D. Yes, since both are permissible transactions irrespective of limit

Under LRS, the overall ceiling is USD 250,000 per financial year, irrespective of the purpose. Mr. Sharma already remitted USD 100,000; hence, he can remit only up to USD 150,000 more, not 175,000.

18. A resident individual remits USD 60,000 for medical treatment abroad and USD 80,000 for maintenance of relatives. How much more can he remit under LRS in the same financial year?

• A. USD 120,000
• B. USD 110,000
• C. USD 90,000
• D. USD 100,000

Total remitted = 60,000 + 80,000 = USD 140,000. Maximum limit is USD 250,000. Remaining permissible = 250,000 – 140,000 = USD 110,000.

19. Mr. Khan wants to send USD 300,000 abroad in one financial year: USD 200,000 for education and USD 100,000 for investment in shares. What is the maximum amount he can remit under LRS?

• A. USD 250,000
• B. USD 200,000
• C. USD 300,000
• D. USD 150,000

The ceiling under LRS is USD 250,000 per financial year, irrespective of number or type of permissible purposes. Even though education and shares are allowed, total cannot exceed 250,000.

20. A student receives USD 70,000 as remittance under LRS from his father. His mother also wants to remit USD 200,000 in the same year for his expenses. How much can the student receive in total under LRS?

• A. USD 250,000 from both parents combined
• B. USD 270,000, since each parent has separate limit
• C. USD 200,000 only
• D. USD 320,000, since each parent has independent limit of USD 250,000

Each resident individual has an independent limit of USD 250,000 per financial year. Father can remit up to 250,000 and mother also 250,000. Thus, the student can receive a combined amount of up to USD 500,000 in a year.

21. Mr. Verma remitted USD 200,000 for property purchase abroad. Later, he wants to remit USD 75,000 for investment in foreign mutual funds. How much can he remit additionally under LRS in the same financial year?

• A. USD 75,000
• B. USD 100,000
• C. USD 50,000
• D. Nil, as the limit is exhausted

Already remitted = USD 200,000. LRS ceiling = USD 250,000. Balance available = 250,000 – 200,000 = USD 50,000. Hence only USD 50,000 more can be remitted.

22. As per RBI’s LRS guidelines, what is the maximum amount an individual can remit in foreign currency for current account transactions in one financial year?

• A. USD 250,000
• B. USD 100,000
• C. USD 500,000
• D. USD 50,000

Under LRS, a resident individual can remit up to USD 250,000 per financial year for all permissible current and capital account transactions combined.

23. Which of the following is a permissible current account remittance under LRS?

• A. Remittance for gambling abroad
• B. Remittance for purchase of lottery tickets
• C. Remittance for margin trading in forex abroad
• D. Remittance for living expenses of a student abroad

Living expenses of students abroad are covered as permissible current account transactions under LRS. Gambling, lottery, and margin trading are strictly prohibited.

24. Under operational guidelines of LRS, remittances for emigration are treated as:

• A. Capital account transaction
• B. Current account transaction
• C. FDI transaction
• D. External commercial borrowing

Remittances for emigration, education, medical treatment, and maintenance of relatives are all classified as Current Account Transactions under LRS.

25. Mr. Rao remits USD 50,000 for travel abroad and USD 70,000 for his son’s education in the same financial year. How much more can he remit for current account transactions?

• A. USD 100,000
• B. USD 150,000
• C. USD 130,000
• D. USD 80,000

Total remitted = USD 50,000 + 70,000 = USD 120,000. Maximum permissible = USD 250,000. Balance available = 250,000 – 120,000 = USD 130,000.

26. As per LRS operational guidelines, which document must an individual submit to the AD bank before making remittances?

• A. PAN card and Aadhar only
• B. Income Tax return copy
• C. CA certificate of net worth
• D. Form A2 and PAN number

For remittances under LRS, the remitter must submit Form A2, PAN details, and a declaration to the Authorized Dealer (AD) bank confirming that the limit has not been breached.

27. Under the Finance Act 2020, what rate of Tax Collected at Source (TCS) is applicable on foreign remittances under LRS exceeding ₹7 lakh in a financial year (except for education/medical)?

• A. 1%
• B. 5%
• C. 10%
• D. 0.5%

As per Section 206C(1G) of the Income Tax Act, 5% TCS is applicable on LRS remittances exceeding ₹7 lakh in a financial year, excluding remittances for education and medical treatment.

28. If the remittance under LRS is for education abroad funded through a loan from an approved financial institution, what is the applicable TCS rate above ₹7 lakh?

• A. 5%
• B. 2%
• C. 0.5%
• D. Nil

For education remittances funded through a loan from a financial institution, a concessional TCS rate of 0.5% is applicable on amounts exceeding ₹7 lakh.

29. Which of the following is a Capital Account transaction permissible under LRS?

• A. Acquisition of immovable property outside India (except in prohibited countries)
• B. Remittance for margin trading abroad
• C. Lottery ticket purchases abroad
• D. Gambling activities abroad

Under LRS, resident individuals can acquire immovable property abroad (except in prohibited countries such as Pakistan, Nepal, Bhutan, etc.), making it a permissible capital account transaction.

30. Mr. Sharma remits ₹15 lakh abroad for investment in foreign securities under LRS. How much TCS will be collected by the bank?

• A. ₹25,000
• B. ₹50,000
• C. ₹40,000
• D. ₹40,000 (5% of ₹8 lakh exceeding ₹7 lakh)

TCS is collected at 5% on the amount exceeding ₹7 lakh. Here, remittance = ₹15 lakh. Excess = ₹8 lakh. TCS = 5% of ₹8 lakh = ₹40,000.

31. Under LRS, which of the following is NOT permitted as a capital account transaction?

• A. Acquisition of shares abroad
• B. Remittance for margin trading in foreign exchanges
• C. Loan to relatives outside India
• D. Purchase of immovable property abroad

Margin trading, derivatives, and speculative transactions abroad are strictly prohibited under LRS. Other options like shares, property, and loans are permissible capital account transactions within limits.

32. Which of the following information is mandatory to be furnished by a resident individual while making a remittance under LRS?

• A. Aadhar number only
• B. Passport number only
• C. Permanent Account Number (PAN)
• D. Voter ID number

PAN is mandatory for all remittances under LRS to ensure proper monitoring and avoid multiple remittances exceeding the permissible limit.

33. Which form must be submitted to the Authorized Dealer (AD) bank while making a remittance under LRS?

• A. Form 15G
• B. Form 15CA/CB
• C. Form 26AS
• D. Form A2

Form A2 is submitted to the AD bank for every remittance under LRS, along with a declaration that the limit of USD 250,000 has not been breached.

34. What is the role of Authorized Dealer (AD) banks in reporting LRS transactions?

• A. Report to SEBI on a monthly basis
• B. Report all LRS transactions to RBI through the Online Return Filing System (ORFS)
• C. Report only if remittance exceeds USD 100,000
• D. No reporting requirement for AD banks

AD banks must report all LRS transactions to the RBI on a daily basis through the ORFS, ensuring monitoring and compliance of the scheme.

35. In case an individual uses multiple AD banks for remittances under LRS, how is compliance with the annual limit ensured?

• A. PAN-based central monitoring
• B. Aadhar-based central monitoring
• C. Passport-based monitoring
• D. Self-declaration without verification

PAN-based monitoring is used to track remittances across all AD banks to ensure the annual ceiling of USD 250,000 is not breached.

36. Which statement is TRUE regarding reporting of LRS remittances by AD banks?

• A. Reporting is optional for transactions below USD 10,000
• B. Reporting is required only at year-end
• C. Reporting is the responsibility of the remitter, not the bank
• D. All transactions must be reported to RBI, irrespective of amount

AD banks are required to report all LRS remittances to RBI, irrespective of the transaction size, through the prescribed online system.