Overview of RBI Guidelines for Outward Remittance

Outward remittance refers to the transfer of funds from India to a foreign country, which can be done for various purposes like education, travel, medical expenses, investments, and more. Here’s a detailed breakdown of the guidelines, taxation rules, and documentation required for outward remittance from India.

What is Outward Remittance?

Outward remittance means transferring money from India to another country. People do this for various reasons, such as paying for education abroad, covering medical expenses, travel, making investments, or sending money to family or friends living overseas.

In India, the process is regulated by the Reserve Bank of India (RBI) under the Liberalised Remittance Scheme (LRS). According to this scheme, individuals are allowed to send up to USD 250,000 per financial year for specific purposes like studying, traveling, or investing in property or shares abroad.

When sending money overseas, you need to follow legal rules like the Foreign Exchange Management Act (FEMA) to ensure everything is done properly. Since 2020, a tax called Tax Collected at Source (TCS) is applied to outward remittances. The tax rate depends on the purpose of the transfer. For example, a lower tax applies if the money is for education and funded by a loan.

Understanding the regulations and having the right documents is important for a smooth and legal transfer when sending money abroad from India.

Meaning of Outward Remittance

Outward remittance means sending money from India to another country. People send money abroad for many reasons, like paying for education, covering medical expenses, traveling, or even buying property and investing in foreign markets.

The Reserve Bank of India (RBI) regulates this process through the Liberalised Remittance Scheme (LRS). Under this scheme, individuals can send up to USD 250,000 abroad each year for specific purposes like studying or investing.

Simply put, outward remittance allows people in India to transfer money internationally, but they must follow certain legal rules to ensure everything is done correctly.

Where Do You Need Outward Remittance?

Outward remittance is when people or businesses in India send money to another country. Here are the most common reasons why this is needed:

1. Education: Many Indian students study abroad and need to send money for things like tuition fees and living costs.
2. Travel: When people go on trips to other countries, they need money for things like flights, hotels, and other expenses during their stay.
3. Medical Treatment: Some people go abroad for medical reasons and send money to pay for treatments, hospital stays, and doctor visits.
4. Gifts and Donations: People often send money to help family or friends living overseas or donate to international charities.
5. Investments: Some individuals want to invest in property or stocks in other countries, so they use remittance to transfer funds.
6. Business Payments: Companies in India send money abroad to pay for goods, services, or to settle invoices with international business partners.

These are the main reasons why people and businesses in India send money to other countries.

Difference Between Inward Remittance and Outward Remittance

The key difference between inward remittance and outward remittance lies in the direction of money flow between countries.

1. Inward Remittance:
   • Definition: Inward remittance refers to money sent from a foreign country to India. This usually happens when individuals or businesses outside India transfer funds to recipients within India.
   • Examples:
     • A person working abroad sends money back home to their family in India.
     • A business overseas pays an Indian company for services or goods provided.
2. Outward Remittance:
   • Definition: Outward remittance is the opposite—when money is sent from India to a foreign country. This is done for various purposes like education, travel, or investments abroad.
   • Examples:
     • An Indian student studying abroad sends money for tuition and living expenses.
     • A company in India pays a foreign supplier or business partner.

Key Differences:

• Direction of Funds:
  • Inward remittance brings money into India from abroad.
  • Outward remittance sends money out from India to another country.
• Purpose:
  • Inward remittance is usually for receiving payments, family support, or business deals.
  • Outward remittance is typically for personal expenses like education, medical treatment, travel, or international investments.

Both types of remittance play an important role in cross-border financial transactions.

Which Institutions Are Allowed to Send Money Abroad?

The Reserve Bank of India (RBI) allows certain banks and companies to help people in India send money to other countries. Here’s a simplified explanation:

1. Big Banks (Category-I Authorized Dealers):
   • Major banks like State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank can handle different types of transactions, such as paying for education, medical treatments, travel, or foreign investments.
2. Other Financial Services (Category-II Authorized Dealers):
   • Companies like Thomas Cook and Western Union, along with some non-banking financial companies (NBFCs), are allowed to help send money for specific needs like travel, small educational payments, or medical treatments.
3. Online Services:
   • Some banks provide online platforms where you can send money abroad through their website or app, like ICICI Bank and HDFC Bank.

These institutions are approved by the RBI, so they can safely and legally send money abroad for you.

What are the Account Details Required of Beneficiary for Outward Remittance?

If you want to send money from India to another country, the Reserve Bank of India (RBI) has some rules you need to follow. Here’s a simple breakdown:

1. How Much You Can Send:
   • Under the Liberalised Remittance Scheme (LRS), you can send up to USD 250,000 each year for reasons like education, medical expenses, travel, or investments.
2. PAN Card:
   • You must have a valid PAN card (Permanent Account Number). It’s needed to keep track of your money transfers and for tax purposes.
3. Purpose of Sending Money:
   • You can send money for:
     • Paying school fees abroad
     • Medical treatments
     • Traveling
     • Sending gifts or donations
     • Investing in foreign property or stocks
     • Business payments
   • Some uses, like gambling or currency trading, are not allowed.
4. Form A2:
   • You will need to fill out Form A2, which tells the bank why you’re sending the money. You give this form to the bank handling your transfer.
5. Follow Foreign Exchange Rules:
   • You must confirm that your money transfer follows Foreign Exchange Management Act (FEMA) rules, which ensure the transfer is legal.
6. KYC (Know Your Customer):
   • Your bank will require you to complete KYC verification, which means providing ID, address proof, and your PAN card to confirm who you are.
7. Tax on Larger Amounts (TCS):
   • If you send more than INR 7 lakh in a year, a tax called Tax Collected at Source (TCS) will apply:
     • 5% tax on most transfers over INR 7 lakh.
     • 0.5% tax for education payments from a loan.
     • A 20% tax for some remittances, like investments, starting July 2023.
8. Bank Fees:
   • Banks charge a fee for sending money abroad. You should check with your bank to know the exact amount they will charge

Intermediary Bank Charges During Outward Remittance

When you send money internationally, it often goes through several banks before reaching the recipient. These middle banks, called intermediary banks, charge fees for processing the transfer. Here’s a simple breakdown of these charges:

1. Intermediary Bank Fees:
   • If the sending and receiving banks don’t have a direct connection, your money will pass through one or more intermediary banks.
   • Each of these banks charges a fee, which can be between USD 10 and USD 50. This fee is usually deducted from the total amount you send, so the recipient might get a bit less than you intended.
2. Currency Conversion Fees:
   • When sending money in Indian Rupees (INR) that needs to be converted to another currency (like US dollars or euros), there will be a conversion fee. This fee is charged by the bank that handles the currency exchange.
3. Receiving Bank Fees:
   • The bank in the recipient’s country might also charge a fee to process the incoming transfer. This is in addition to the intermediary bank fees and can reduce the amount the recipient receives.
4. Who Pays the Fees?:
   • BEN (Beneficiary): The recipient covers all fees, which means they get less money because the charges are taken out of the amount sent.
   • OUR: The sender pays all fees upfront, so the recipient gets the full amount.
   • SHA (Shared): Fees are shared between the sender and the recipient. The sender pays the fees at their bank, while the recipient covers any charges from intermediary or receiving banks.

These fees can vary based on the banks and countries involved. It’s a good idea to check with your bank about the fees before sending money to understand how much the recipient will get.

Conclusion

Outward remittance from India is a straightforward process, provided you comply with RBI guidelines and understand the taxation framework. Proper documentation and awareness of TCS rules ensure that your remittance is processed smoothly and that you’re able to claim back any taxes paid during your annual tax filing. Whether you’re sending money for education, travel, or investment, staying informed about these regulations will help you manage your international transfers more effectively.