LRS, TCS & Schedule FA: India's compliance trifecta

If you invest in US stocks as an Indian resident, three pieces of regulation govern your life: the Liberalised Remittance Scheme (LRS) controls the money going out, Tax Collected at Source (TCS) is the cash-flow tax on remittances, and Schedule FA is the annual disclosure of what you hold abroad.

Each one trips up a predictable percentage of investors. The penalties range from "annoying refund delay" to "₹10 lakh per year and prosecution under the Black Money Act."

This post is the boring, complete version. Bookmark it; you'll need it once a year for the rest of your investing life.

The LRS, in one paragraph

The Liberalised Remittance Scheme is a Reserve Bank of India circular (Master Direction on LRS, last amended via the FEMA notification series) that allows resident individuals to remit up to USD 250,000 per financial year abroad for any permissible current or capital account transaction — including buying foreign stocks, real estate, or sending money to relatives abroad. Without LRS, foreign investments by individuals would not be legal under FEMA.

That's the law. Here's what it actually feels like to use.

Part 1: The LRS limits

USD 250,000 per person, per FY

Two important nuances:

Per financial year, not calendar year. The Indian financial year runs April 1 to March 31. Your LRS budget resets on April 1. If you've used $200,000 by March, you can use the next $250,000 starting April 1.

Per person, not per account or per family. A married couple has USD 500,000 of combined annual headroom. Children below 18 are not separate persons for LRS purposes (their remittances are aggregated with the parent's PAN).

What counts toward the limit

Everything you remit abroad personally counts:

• Investment in foreign stocks, ETFs, mutual funds, real estate.
• Education expenses for children/self studying abroad.
• Travel (above the basic travel allowance).
• Gifts to non-residents.
• Medical treatment abroad.
• Maintenance of close relatives.

What does not count:

• Business remittances by your employer or a company (those are governed separately under FEMA).
• LRS by your spouse's PAN (separate person).

The Form A2 declaration

Every LRS remittance requires you to submit Form A2 at your bank. The form asks:

• Name and PAN.
• Purpose code (e.g., S0001 for investment in equity).
• Amount in USD/foreign currency.
• Recipient bank details.
• A declaration that you have not exceeded USD 250,000 across all sources this FY.

Your bank refuses the remittance if you can't produce a credible A2.

In practice, most banks have moved A2 fully into net banking. Once you've used a particular recipient (e.g., your DriveWealth account at IndusInd Bank's correspondent), it's saved as a beneficiary and subsequent remittances take 2 minutes.

Permitted vs. prohibited purposes

LRS permits a wide range of purposes. The notable prohibited ones:

• Margin trading or leveraged trading abroad.
• Buying foreign exchange traded derivatives (futures, options) — though buying ETFs that internally hold derivatives is allowed.
• Lottery, gambling, or remittance to entities involved in such activities.
• Any country in the FATF "high-risk" list (currently includes North Korea and Iran).

Investing in US ETFs and stocks via a regulated broker is squarely permitted under purpose code S0001 — Equity investment.

What happens if you exceed USD 250,000?

You can't, in practice. Banks check the limit before processing each A2. If you try to remit more, the bank refuses. If you have multiple bank accounts and somehow split remittances to bypass the check, you've committed an FEMA violation — penalties under FEMA can be up to 3x the amount remitted in violation, plus potential prosecution.

There is one exception: certain medical and education remittances above USD 250,000 are permitted with approvals from the bank, based on documentation (e.g., a hospital invoice or university fee letter). These do not apply to investment purposes.

Part 2: TCS on LRS remittances

The mechanics

Tax Collected at Source is governed by Section 206C(1G) of the Income Tax Act. As of 2026, the rates for LRS remittances for investment purposes are:

Cumulative LRS in FY (investment)	TCS rate
Up to ₹10 lakh	0%
Above ₹10 lakh	20% on the excess

Note: for education and medical remittances, the rates and thresholds differ — those have lower TCS rates and higher thresholds. The 20% / ₹10 lakh threshold is specifically for investment, gifts, and other non-essential purposes.

When TCS gets collected

TCS is collected at the moment of remittance, by your bank. If you're remitting ₹15 lakh to your US broker:

• ₹10 lakh: no TCS.
• ₹5 lakh: 20% TCS = ₹1 lakh collected by the bank.
• Total amount that reaches your US account: ₹14 lakh.
• Your bank deposits ₹1 lakh of TCS to the IT department against your PAN.

Why TCS is a cash-flow problem, not a tax

TCS is fully refundable as a credit against your final tax liability. It is not an additional tax. But the timing is brutal:

1. You remit on, say, July 10, 2026. ₹1 lakh of TCS gets deposited.
2. The relevant FY is 2026–27.
3. You file your ITR by July 2027. The TCS shows up as a TDS-style credit in your Form 26AS / AIS.
4. Refund processed: typically September–November 2027.

So that ₹1 lakh sits with the government for 14–16 months. At an 8% opportunity cost, that's ~₹10,000 of foregone return per ₹1 lakh of TCS, per year.

The cash-flow workaround

There's no legal way to avoid TCS — it's collected automatically. But you can manage it:

Option 1: Stagger remittances across financial years. If you want to deploy ₹20 lakh, sending ₹10 lakh in March and ₹10 lakh in April uses two separate ₹10 lakh TCS-free buckets. You avoid TCS entirely.

Option 2: Adjust advance tax payments downward. TCS counts toward your annual tax liability. If your employer is deducting TDS based on your salary alone, but you have ₹2 lakh of TCS sitting at the IT department, your effective advance tax obligation is ₹2 lakh less. Adjust your quarterly advance tax accordingly so you're not double-paying.

Option 3: Just absorb it. For most people remitting ₹10–20 lakh a year, the cash-flow drag is real but not life-changing. Don't let TCS become the reason you don't invest.

TCS for non-investment purposes

For completeness:

Purpose	Threshold	TCS rate
Education (via loan from financial institution)	₹0	0%
Education (other)	₹7 lakh	5% above threshold
Medical	₹7 lakh	5% above threshold
Foreign tour package	₹7 lakh	5% / 20% (varies)
Investment, gifts, other	₹10 lakh	20% above threshold

These are separate buckets. ₹6 lakh of education + ₹8 lakh of investment in the same year does not trigger TCS on either, because each is within its own threshold.

Part 3: Schedule FA — the disclosure that has real teeth

This is the one that actually scares people, and rightly so.

What Schedule FA asks for

Schedule FA is a part of your Indian Income Tax Return where you disclose every foreign asset held at any point during the financial year. The granularity is significant.

For each foreign equity holding, you disclose:

• Country code.
• Name and address of the foreign entity.
• Zip code.
• Nature of ownership (direct/beneficial).
• Date of acquiring the interest.
• Initial value of investment (in INR, at exchange rate on acquisition date).
• Peak value held during the year (in INR).
• Closing balance (in INR).
• Total income/gains earned (in INR).

So if you hold VTI from January 2026 onward, you need to know the INR value of your VTI position at its highest point during FY 2026–27. If VTI peaked at $50,000 on a day USD/INR was ₹86, your peak value is ₹43,00,000 — and that's what you disclose, even if you currently hold $40,000.

Why this matters: the Black Money Act

Schedule FA is enforced under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, in addition to the regular Income Tax Act. The Black Money Act has teeth that the regular Income Tax Act does not:

Violation	Penalty
Failure to disclose foreign asset (any value)	₹10 lakh per year of default
Willful evasion of tax on foreign income	3x the tax amount + prosecution (3–10 years)
Continued non-disclosure	Compounded year over year

The ₹10 lakh penalty is per year of default, not per asset. If you held US stocks for three years and didn't disclose, that's three years of penalty potential — ₹30 lakh.

There is no minimum threshold. A single share of AAPL worth ₹15,000 must be disclosed.

The "I bought through Vested, so it's not foreign" myth

A surprising number of first-time investors believe that buying through an Indian platform makes the asset "Indian." It does not.

• The platform (Vested, INDmoney, etc.) is a SEBI-registered Indian entity.
• The shares are held at a US broker (DriveWealth, Stockal, etc.) in your name.
• From a tax law perspective, your beneficial ownership of foreign securities triggers Schedule FA.

The platform might generate a Schedule FA helper file at year-end (Vested does this). Use it. But the legal obligation is yours.

Filling out Schedule FA: a practical walkthrough

For each US stock or ETF you hold:

1. Country: 2 (USA — the country code in the ITR utility).
2. Name of entity: Match what's on your broker statement. For VTI, it's "Vanguard Total Stock Market ETF" (or whatever the ETF name is on your statement). For Apple stock, "Apple Inc."
3. Address: The registered office. Easily Google-able. For VTI: 100 Vanguard Boulevard, Malvern, PA 19355.
4. Date of acquiring: Date of your first purchase.
5. Initial value: Total cost basis in INR, summed across all your purchases.
6. Peak value during year: Highest market value in INR during the FY.
7. Closing balance: Market value in INR on March 31 (or the last trading day of the FY).
8. Income earned: Dividends + realized capital gains in INR.

For exchange rates, the ITR utility accepts the SBI TT-buying rate on the relevant dates. Your broker's statement may show a different rate (the rate they actually executed at) — for tax purposes, use SBI TT-buying.

What about cash held at the broker?

If your US broker holds cash on your behalf (e.g., USD waiting to be invested, or dividend cash that hasn't been swept), that's a foreign bank account / depository account for Schedule FA purposes. Disclose it under the appropriate Schedule FA table (typically table A1 for foreign depository accounts).

If the cash is small (under USD 1,000), some advisors say there's a de minimis practical tolerance — but strictly speaking, the Black Money Act does not have a minimum threshold. When in doubt, disclose.

How the three interact: a concrete annual cycle

Let's walk through a full year of compliance for someone investing ₹15 lakh in US ETFs in FY 2026–27.

April 2026

You decide to invest ₹15 lakh this year. You plan two remittances of ₹7.5 lakh each (April and October).

• April remittance: ₹7.5 lakh sent. No TCS (under ₹10 lakh cumulative).
• Submit Form A2 at your bank.
• Buy VTI at your broker.

October 2026

Second remittance.

• ₹2.5 lakh of this falls under the ₹10 lakh threshold (no TCS).
• ₹5 lakh is above the threshold: 20% TCS = ₹1 lakh collected by the bank.
• Net amount reaching your broker: ₹14 lakh (out of ₹15 lakh remitted total).

December 2026

VTI pays a quarterly dividend of $200 (~₹17,200).

• US withholds 25% = $50 (~₹4,300).
• You receive $150 (~₹12,900).
• This dividend will need:
  • Inclusion in your Indian taxable income at slab rate.
  • Form 67 filed before your ITR to claim FTC for the $50.

March 31, 2027

Year-end snapshot.

• Take a screenshot of your broker statement: holdings, cost basis, market value, dividend received.
• Note the SBI TT-buying rate for March 31, 2027.
• Calculate peak value during FY 26–27 (highest INR-equivalent market value during any day of the year).

June 2027

File Form 67 to claim FTC on the $50 of withholding.

July 2027

File your ITR for FY 2026–27. The ITR includes:

• Capital gains schedule (if you sold any holdings — none in this example).
• Dividend income from foreign sources (the $200 from VTI, in INR).
• Schedule FA: detailed disclosure of VTI holding.
• Foreign tax credit claim of $50 → ~₹4,300 INR.
• TCS credit of ₹1 lakh.

The ₹1 lakh TCS shows up in your Form 26AS / AIS. It's adjusted against your final tax liability. If your total tax on Indian income + foreign income comes to ₹3 lakh, you owe ₹3 lakh − ₹1 lakh (TCS) − ₹4,300 (FTC) = ₹1,95,700.

September–October 2027

Refund processed if you over-paid.

Repeat annually.

Year two is much easier — Schedule FA just gets updated with the new peak/closing values, no new entity to register.

The mistakes worth flagging

After the LRS, TCS, and Schedule FA mechanics are clear, here are the recurring errors I see most:

1. Treating Vested/INDmoney as "Indian" for Schedule FA. It's not. Disclose.
2. Forgetting Form 67 for dividends. Lost FTC. Pure money on the floor.
3. Splitting LRS remittances across spouse and child PANs to "avoid" TCS. This is fine if the funds genuinely belong to those people. It is not fine if you're just routing your own money through their PAN — that's a benami transaction.
4. Not keeping records. When the notice arrives in 2030 about your FY 26–27 disclosure, your broker may have been acquired or shut down. Save statements locally each year.
5. Underestimating peak value. Schedule FA wants peak value, not closing value. If your portfolio hit ₹50 lakh in November before ending the year at ₹40 lakh, you disclose ₹50 lakh.
6. Filing Schedule FA on time but missing Form 67. Two separate filings, two separate deadlines. Don't conflate them.

The annual checklist

Print this. Tape it next to your monitor.

• Every remittance: Form A2 submitted, copy saved.
• Every dividend received: noted with date and INR equivalent at SBI TT rate.
• Every realized sale: cost basis (INR) and proceeds (INR) recorded.
• March 31: full year-end snapshot saved (statements, exchange rates, peak values).
• By ITR due date (typically July 31): Form 67 filed for FTC, ITR with full Schedule FA submitted.
• Save all of the above for 7 years (the assessment reopening window for foreign assets is significantly longer than the regular 3-year window).

The compliance trifecta is annoying but not hard. Get the first year right and the rest become muscle memory. The penalty for getting it wrong is severe enough that "I'll figure it out later" is the most expensive sentence you can say in this context.