Exchanging currency in India is not an open market transaction. It runs through authorised dealers, under the Foreign Exchange Management Act, with purpose codes, documents, and annual limits, and the cheapest rate is found inside that framework, not outside it.

The FEMA framework: who can exchange, and through whom

Foreign exchange in India is governed by the Foreign Exchange Management Act, 1999, known as FEMA, and by the Reserve Bank of India directions issued under it. The framework is facilitative, not prohibitive, in its design: it permits a wide range of current account transactions, such as travel, education, medical treatment, and gifts, and a defined range of capital account transactions, such as overseas investment, subject to limits and conditions, and it prohibits a small set of transactions, including margin trading in foreign exchange abroad, lottery winnings, and remittances for purposes the RBI has excluded. The key practical rule is that foreign exchange must be bought and sold through an Authorised Dealer, a bank or institution authorised by the RBI to deal in foreign exchange, or through a licensed Full Fledged Money Changer, for the permitted purposes, with the documents the purpose requires. An exchange outside that channel, however good the rate, is outside the law, and it carries the penalties FEMA provides, which are civil penalties, and the risk of loss without recourse.

Residency under FEMA is the first distinction, and it is not the same as residency under the Income-tax Act. A person resident in India under FEMA is a person who has resided in India for more than 182 days during the preceding financial year, with exceptions for persons who have come to India for employment, business, or an indefinite stay, and for persons who have gone abroad for employment, business, or an indefinite stay. The LRS, described below, is available only to persons resident in India under FEMA. Non-Resident Indians repatriate funds from their NRE, NRO, and FCNR(B) accounts under separate rules, with different limits and documentation, and they do not use the LRS for those repatriations. A person who has recently moved, in either direction, should confirm their FEMA residential status with the bank before transacting, because the status decides which route applies, and the wrong route produces the wrong documents and the wrong limit.

Every outward remittance requires a declaration of purpose, given on Form A2, and a purpose code from the RBI list, which classifies the transaction: education, medical treatment, private visit, gift, maintenance of relatives, overseas investment, and the other permitted purposes. The purpose code matters, because it decides the documents required, the tax treatment, and whether the transaction is permitted at all for that purpose. A remittance for a purpose without a code, or for a prohibited purpose, will be refused by the dealer, correctly, and the refusal should be treated as information about the framework, not as an obstacle to be circumvented. The dealer is required to verify the purpose, to retain the documents, and to report the transaction to the RBI, and the remitter PAN is mandatory for all LRS transactions, with the transactions tracked PAN-wise across dealers.

The Liberalised Remittance Scheme: the USD 250,000 limit

The Liberalised Remittance Scheme, introduced by the RBI on 4 February 2004, allows resident individuals, including minors, through a guardian, to remit up to USD 250,000 per financial year, April to March, for any permitted current or capital account transaction, or a combination of both, without prior RBI approval. The limit is a consolidated limit for all transactions in the year, across all dealers, tracked by PAN. A gift of USD 100,000 in June leaves USD 150,000 of headroom for the rest of the year, for every other purpose combined, and a second dealer cannot reset the limit. Remittances above USD 250,000 require prior RBI approval, except where a specific higher amount is documented as required, for example by a university or a hospital, in which case the dealer can process the higher amount on the strength of the documentation, within the framework the RBI prescribes. There is no limit on the number of transactions, only on the cumulative value, and there is no carry-forward of unused headroom to the next financial year.

The permitted uses cover the transactions resident individuals ordinarily need: overseas education, including tuition and living expenses; medical treatment abroad; private visits, including travel; gifts and donations; maintenance of close relatives abroad; purchase of immovable property, shares, and other permitted overseas investments; and opening and maintaining foreign currency accounts abroad. Prohibited uses include remittances for margin calls or margin trading on overseas exchanges, for the purchase of lottery tickets or banned magazines, for trading in foreign exchange abroad, and for any transaction that the RBI or the government has prohibited. Capital account transactions beyond the LRS, such as large overseas direct investment by an individual, follow separate routes, and the LRS limit does not authorise them. The dealer will advise which route a transaction belongs on, and the advice should be sought before the money moves, because a transaction sent on the wrong route may need to be recalled, with cost and delay.

The LRS limit has been USD 250,000 since June 2015, and it is stated in US dollars, so its rupee value moves with the exchange rate. At a rate of ₹83 to the dollar, the limit is about ₹2.08 crore. At ₹90, it is about ₹2.25 crore. The rupee figure should always be computed at the rate on the day, for the amount being remitted, and the TCS threshold, which is stated in rupees, should not be confused with the LRS limit, which is stated in dollars. The two thresholds answer different questions: the LRS limit is the permission to remit, under FEMA, and the TCS threshold is the point at which tax is collected at source, under the Income-tax Act, and a remittance can be within the LRS limit and above the TCS threshold, or below both, or, with RBI approval, above the LRS limit and above the threshold, with the tax treatment following the rupee amount in each case.

TCS on remittances: rates, threshold, and the credit

Tax Collected at Source, TCS, applies to LRS remittances above a threshold, and it is collected by the Authorised Dealer at the time of the remittance, and credited against the remitter income tax liability. Under the Income-tax Act, 2025, which consolidated the earlier TCS provisions, from 1 April 2026 the TCS rates on LRS remittances are 2 percent on the portion of eligible education or medical remittances exceeding ₹10 lakh in the financial year, and 20 percent on the excess portion for other covered LRS purposes above the same ₹10 lakh threshold, with a separate prescribed exception for education remittances funded by a loan from a financial institution, and a distinct 2 percent seller-collection rule for overseas tour programme packages. The threshold is cumulative across the financial year, per remitter, and the TCS is collected on the excess only, not on the whole remittance, so a remittance of ₹12 lakh for education purposes attracts 2 percent on ₹2 lakh, or ₹4,000, and a remittance of ₹12 lakh for another purpose attracts 20 percent on ₹2 lakh, or ₹40,000, in each case as a credit, not as an additional tax.

TCS is not a tax on the remittance, and it is not lost money, though it feels like both at the moment of collection. It is advance tax, collected at source, credited against the remitter total tax liability for the year, and refunded, with interest where applicable, if the total liability is lower, on filing the return. The practical consequence is a cash-flow cost, not a final cost, for a remitter whose liability covers the TCS, and a refund claim for a remitter whose liability does not. The TCS should therefore be budgeted as a cash outflow in the month of the remittance, and claimed as a credit in the return, with the TCS certificate, Form 27D, retained as evidence. Remitters who expect a large TCS collection can apply for a lower TCS certificate, which the Income-tax Act, 2025, now allows for LRS remitters, and the dealer should be asked about the procedure before the remittance, not after the collection. The rates and threshold stated here reflect the position from 1 April 2026 as reported from the primary sources reviewed in October 2026, and they should be confirmed with the dealer and with a tax adviser at the time of the remittance, because tax provisions change, and the dealer applies the law in force on the date of the transaction.

Travellers: cash, cards, and carrying limits

Travellers from India can buy foreign exchange for a private visit through an Authorised Dealer or a licensed money changer, against the travel documents, with the amount within the LRS limit for the year, and the exchange can be taken as cash, as a prepaid forex card, or as traveller cheques, though cheques are now rarely used. Cash is convenient for small expenses, and a forex card, loaded in the destination currency, is convenient for larger spending, with the card rate locked at loading, and the card usable at shops and ATMs abroad. The mix should be decided by the destination: cash-heavy destinations need more cash, card-friendly destinations need less, and the card should be checked for the currencies it supports, the ATM charges, and the inactivity and reload charges, which vary by issuer and can erode the rate advantage if the card is loaded and then unused.

Carrying limits apply in both directions. Indian currency carried abroad is limited to ₹25,000 per traveller, with exceptions for Nepal and Bhutan, where the rules differ, and the limit should be checked before travel, because it is enforced at the border. Foreign currency carried out of India, as cash, should be within the amount purchased and documented, with the encashment certificate or the purchase receipt retained, because the certificate is needed to reconvert unspent foreign currency into rupees on return, within the period the RBI prescribes, and to explain the holding if questioned. Foreign currency brought into India, in cash or in travellers cheques, must be declared on the customs Currency Declaration Form if it exceeds USD 5,000 in cash, or USD 10,000 in cash plus instruments, and the declaration should be made on arrival, because an undeclared holding discovered later is difficult to explain, and the declaration costs nothing. The limits are per traveller, not per family, and they should be checked for the specific destination and route, because bilateral arrangements, notably with Nepal and Bhutan, modify them.

Money coming into India: inward remittances and reconversion

Money coming into India, inward remittances, follows FEMA inward rules, with no LRS cap and no TCS on receipt, and it should be received through banking channels, with the purpose stated, so that the funds are documented and can be used, invested, or repatriated as the rules allow. A resident who receives foreign currency, by gift, by payment for services, or by repatriation, should route it through an Authorised Dealer, retain the purpose documentation, and consider the tax treatment of the receipt separately, because FEMA permission to receive is not a tax exemption, and the receipt may be taxable as income, as a gift, or as a capital receipt, depending on its nature. The inward remittance should be converted at the dealer rate, with the spread and any fee compared as in the companion guide, and the rupees received should be reconciled against the amount sent, because correspondent bank charges, deducted en route, can reduce the receipt, and the deduction should be identified before the next remittance, not discovered after several.

Reconversion, turning unspent foreign currency back into rupees after a trip, should be done through the same dealer channel, with the encashment certificate, within the prescribed period, and the rate applied will be the dealer buying rate on the day, with its spread. Unspent foreign currency can also be retained, in cash, up to the limit the RBI prescribes for retention, currently USD 2,000 in foreign currency notes, with the balance to be deposited in a foreign currency account or reconverted, and the retention limit should be checked at the time, because it is revised periodically. Retaining more than the limit, or reconverting through an unlicensed dealer for a better rate, breaks the framework that made the original purchase lawful, and the small gain in rate is not worth the loss of documentation, which is the protection if the holding is ever questioned.

Best rates in India: comparing dealers on the total

Authorised Dealers, banks, and licensed money changers in India compete on the spread and the fee, and the spread on major pairs, dollars, euros, pounds, is usually narrower at banks and online dealers than at airport counters, where the spread is widest, for the same reasons as elsewhere. The comparison should be made on the total: the rupees paid, for the foreign currency received, after the spread and every fee, for a purchase, or the rupees received, for the foreign currency sold, after the spread and every fee, for a sale. The dealer should quote the rate, the fee, and the net figure in writing, before the transaction, and the net figure should be compared across at least two dealers on the same day, because the rate moves, and a comparison across days is not a comparison. Online dealers and forex marketplaces, which aggregate Authorised Dealer quotes, can widen the comparison, but the dealer behind the quote must still be authorised, and the marketplace itself is not a dealer, so the authorisation should be checked, not assumed from the website.

Cash, card, and transfer rates differ within the same dealer, because cash costs more to handle, insure, and deliver than a transfer, and the card rate is locked at loading, with the card charges separate. A dealer who quotes a good transfer rate may quote a poor cash rate, and the comparison should be made for the form being bought, not for the dealer in general. The best rate for a transfer is rarely the best rate for cash, and the traveller who needs both should compare both, and may rationally use different dealers for the two forms, buying the transfer from the cheapest transfer dealer and the cash from the cheapest cash dealer, provided both are authorised and the documents are in order. The total cost, across both forms, is the figure to minimise, not the rate on either form alone.

Documents and purpose codes: what to carry

The documents for an LRS remittance are: a valid PAN card, Form A2, duly filled with the purpose code, the beneficiary details, and the amount, and the purpose documents, which vary by purpose. For education, the admission letter, the fee schedule, and the university bank details. For medical treatment, the hospital estimate and the medical documents. For travel, the passport, the visa where required, and the tickets. For a gift, the declaration of the relationship and the purpose. For investment, the investment documents and the valuation where required. The dealer may ask for more, where the purpose or the amount requires it, and the documents should be carried in original or as certified copies, as the dealer directs, because a remittance refused for want of a document is delayed, and a delayed remittance, for a fee deadline or a medical appointment, is a failed remittance, whatever the rate.

Purpose codes are drawn from the RBI master list, and the dealer will assign the code, or confirm the code the remitter proposes. The code should match the actual purpose, because a code chosen for convenience, such as a travel code for an investment, misstates the transaction, misleads the reporting, and can cause the transaction to be questioned later, when the purpose is verified against the documents. The remitter should state the purpose plainly, provide the documents that prove it, and let the dealer assign the code. The framework is designed to accommodate every permitted purpose, and there is no permitted purpose that needs a false code. The documents are the protection, for the remitter and for the dealer, and they should be retained, with the Form A2 copy and the TCS certificate, for the period the tax and FEMA record-keeping rules require, which is generally eight years for tax records, and the dealer advice should be followed where it differs.

Pitfalls: hawala, unlicensed dealers, and the rate that is too good

Hawala, the informal value transfer system, and unlicensed dealers, who offer rates better than the authorised market, are illegal channels for foreign exchange in India, and they should never be used, whatever the rate offered. The rate is better because the channel bears no compliance cost, no reporting, and no protection, and the money sent through it is at risk of loss, of confiscation, and of prosecution, with no receipt, no recourse, and no documentation for the tax return or for the purpose the money was sent for. The authorised channel is slower and dearer by the spread, and it is the only channel that produces a lawful, documented, reconcilable transaction, which is what the money is for. A rate far better than the market rate, from any source, is a warning, not an opportunity, and it should be declined, reported where appropriate, and replaced by a quote from an Authorised Dealer, whose rate, however ordinary, is real.

Two further pitfalls are specific to India. The first is the confusion between the LRS limit and the TCS threshold, which leads remitters to believe that a remittance below ₹10 lakh is free of TCS, which is correct, and that a remittance above USD 250,000 is permitted because TCS was paid, which is incorrect: TCS is tax collection, not FEMA permission, and the LRS limit requires RBI approval above it, whatever the tax position. The second is the use of a forex card loaded in one currency for spending in another, which incurs a conversion at the card rate, with a spread, on every transaction, and which should be avoided by loading the card in the currency of the destination, or by using a multi-currency card that holds the destination currency. Both pitfalls are avoided by the same discipline that runs through this guide: state the purpose, use the authorised channel, compare the total, keep the documents, and decline the rate that is too good to be true, because in foreign exchange, as in every market, it is.

Frequently asked questions

What is the Liberalised Remittance Scheme limit for India?

The Liberalised Remittance Scheme allows resident individuals to remit up to USD 250,000 per financial year, April to March, for permitted current and capital account purposes, through an Authorised Dealer, with Form A2. The limit is consolidated across all transactions and all dealers in the year, tracked by PAN, and remittances above it require prior RBI approval.

What is TCS on foreign remittance from India?

Tax Collected at Source is collected by the Authorised Dealer on LRS remittances above ₹10 lakh in the financial year. From 1 April 2026, under the Income-tax Act, 2025, the rate is 2 percent on the excess for eligible education and medical purposes, and 20 percent on the excess for other covered purposes. TCS is a credit against income tax, not an additional final tax, and it is refunded if the total liability is lower.

How much foreign currency can I carry out of India?

Travellers can buy foreign exchange within the LRS limit, as cash, on a forex card, or by transfer, against travel documents. Indian currency carried abroad is limited to ₹25,000, with exceptions for Nepal and Bhutan. Foreign currency brought into India must be declared if it exceeds USD 5,000 in cash, or USD 10,000 in cash plus instruments, and the encashment certificate should be kept for reconversion.

Can NRIs use the Liberalised Remittance Scheme?

No. The LRS is available only to persons resident in India under FEMA. Non-Resident Indians repatriate funds from NRE, NRO, and FCNR(B) accounts under separate rules, with different limits and documentation. FEMA residency differs from Income-tax Act residency, so confirm status with the bank if you have recently moved.

Where do I get the best currency exchange rate in India?

Compare Authorised Dealers, banks, and licensed money changers on the total: the rupees paid or received, after the spread and every fee, for the actual amount and form, cash, card, or transfer, on the same day. Airport counters carry the widest spreads. Online dealers usually offer narrower spreads for transfers. The dealer must be authorised by the RBI.

What documents do I need to exchange currency in India?

A valid PAN card, Form A2 with the purpose code, and the purpose documents: admission and fee documents for education, hospital documents for medical treatment, passport and tickets for travel, and the relevant documents for gifts and investments. The dealer verifies the purpose and reports the transaction to the RBI.