Outward Remittance: What is it and How Does it Work? (2024)

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In this blog, we will dive deep into the meaning of outward remittance, how it works, RBI regulations around the same and more.

With the COVID-19 restrictions easing out and business continuing as usual, many sectors have picked pace, including inward and outward remittances. As of April 2022, outward remittances alone accounted for USD 2.02 billion and total remittances.

But, what does outward remittance mean? What do they consist of and what are the Reserve Bank of India’s (RBI’s) guidelines on outward remittances in India? We’ll answer all these questions in this blog.

So, let’s get started!

Outward Remittance Meaning: What Is Outward Remittance?

As the name suggests, outward remittance means sending money into the bank account of a beneficiary living overseas (except Nepal and Bhutan) by a resident Indian account holder. Ideally, these transfers can only be made in accordance with purposes listed by the Foreign Exchange Management Act (FEMA) of 1999.

In India, banks handle the major chunk of outward remittances. However, besides them, three more money transfer operators dominate the market, namely, Western Union, MoneyGram, and Ria. The three non-bank conglomerates operate across 1.1 million retail locations in 200 countries worldwide. Each of these entities have their own charges and fees.

The Outward Remittance Market In India

At present, travel and education hold the highest share of outward remittances in India. This is because, more and more Indians are flying abroad either to travel or for education purposes which were put on hold due to the outbreak of the COVID-19 pandemic.

According to an Economic Times article, the travel sector witnessed a total spend of about USD 6.91 billion in the FY ending March 2022. Meanwhile, education outward remittances stood at USD 5.17 billion in FY 2022 compared to USD 3.83 billion in FY21.

Related Read: LRS Solution by Cashfree Payments for Education Consultants

What Are RBI’s Guidelines On Outward Remittance?

In India, the Liberalised Remittance Scheme defined under FEMA deals with all outward remittance related actions in India. As per the scheme’s guidelines, all Indian residents are allowed to send money overseas without seeking any special permission. However, these transfers must fall under one of the below mentioned categories.

Sending money for overseas education and/or supporting the living expenses of students studying abroad
Travel and tourism cost, including business travel
Sending funds formedical treatment purposes
Purchasing a property or buying shares overseas
Supporting family members living abroad
Sending gifts or donations
For emigration purposes
Participating in an international conference, etc.

Meanwhile, the scheme also prohibits outward remittances against the following activities.

Purchasing products listed under Schedule 2 of the Foreign Exchange Management Rule 2000. These include buying banned magazines, lottery tickets, sweepstakes, and more.
Purchasing Foreign Currency Convertible Bond (FCCB) issued by an Indian enterprise operating in an overseas market, and trading in foreign exchange
Donations to entities which associated or at risk of conducting acts of terrorism

Expert Tip: If you are a business looking for an Outward Remittance Solution, read our blog on Why Outward Remittance by Cashfree Payments in a Better Alternative for LRS

What is The Limit On Outward Remittance From India?

The Reserve Bank of India (RBI) has set an upper limit on the amount an individual can outwardly remit. This limit is different for NRIs and Indian residents.

A. Outward Remittance Made By Indian Residents

According to the guidelines laid down under the Liberalised Remittance Scheme by FEMA, Indian residents can only remit up to USD 2,50,000 per financial year. This means, individuals can make multiple outward remittances, however the total amount must not exceed the defined limit in a FY.

There are certain rules that an individual must follow to make any outward remittances. They’re also entitled to pay a set percentage of tax deducted at source.

Read our detailed blog on the ‘Liberalised Remittance Scheme’ for more information.

B. Outward Remittance for NRIs

Non-residential Indians (NRIs) can send money abroad from either of the three Indian accounts – NRE, NRO and FCNR. While there’s no defined limit for outward remittances in the case of NRE and FCNR accounts, individuals with an NRO account can only send upto USD 1 million per financial year.

Difference Between Inward Remittance And Outward Remittance

Consider inward remittance and outward remittance as two sides of a coin. If one is heads, the other is tales. Listed below are points of difference between inward and outward remittance.

	Inward Remittance	Outward Remittance
Definition	Remittances that are made from overseas to domestic banks.	Remittances that are made from domestic banks to overseas.
Remittance Limit	Only thirty inward remittances are allowed per given year. Cap per transfer is USD 2,500.	Unlimited remittances are allowed per year given the total amount must not exceed USD 2,50,000.
Certificate Required	Every inward remittance must have a Foreign Inward Remittance Certificate (FIRC) issued by the recipient’s bank.	No certificates are required to make outward remittances other than a valid PAN card and valid bank account with an authorised bank.
NRI Rules	No specific rules defined for NRIs	NRIs can only used either of NRE, NRO, and FCNR accounts to make outward remittances

Types of Outward Remittances

The functionality of any remittance service is reliant on some kind of network which ideally includes access points from where funds are captured and disbursed. This also includes a set procedure to link these access points to ensure correct messaging and settlements happen. These access points can either be owned by a remittance service provider itself or have agents take care of the activities.

Meanwhile, remittance services can be divided into four primary buckets based on how the network of access points is designed and linked. These buckets are as follows,

Unilateral services
Franchised services
Negotiated services
Open services

Unilateral Services

A unilateral service is typically a service offered internally by a remittance service provider without using the services of any other entity for fund capturing or disbursem*nts. This basically helps when,

The remittance service provider itself has offices in both the sending and receiving countries
The network used for fund transfer is virtual

An example of unilateral services is global banks which have branches in many countries, or other banks that have set up branches abroad in migrant-concentrated areas.

Franchised Services

A franchised service is where a central provider creates the necessary infrastructure to support the remittance services. It sends an invite to entities from both sending and receiving countries to use their platform to offer remittance services or act as franchisees on ideally some standardised terms.

A good example of franchised services could be global money transfer operators such as Western Union, MoneyGram, etc.

Negotiated Services

In the case of negotiated services, a remittance service provider mediates with a limited number of entities operating abroad to create an adequate network of access points. To give you an example, credit union schemes, bilateral arrangements between banks (one from each sending and receiving country), or hawala services providers, classify under negotiated services.

Open Services

Here, a remittance service provider offers proprietary services to customers in the sending countries and obtains direct or indirect access points in the receiving country via an open network.

Open network enables sending payments from any bank offering cross-border payment services to ideally any other bank across the world. Many non-banking entities also have access to open service networks as customers of banks. At present, open service is the most common type of remittance service provided by the banks.

Challenges Associated With Outward Remittances

While many rules and regulations are in place to ensure safe and secure outward remittances, many challenges and inefficiencies do follow the process.

Some of these challenges are as follows.

Lack of transparency owing to outward remittances
Lack of proper understanding by users
A weak remittance infrastructure
A weak legal framework and disproportionate regulations
Lack of competition in the market due to prevailing conditions
High risk
Low quality service offerings
Inconsistency in remittance fee across the industry

Wrapping up…

Looking at the current rate of outward remittances of India, it wouldn’t be a surprise to see the total numbers doubling up by the end of FY 2022. However, knowing the right facts about outward remittances and the guidelines that follow is critical. Hope this blog helped shed light on some important aspects of outward remittances.

So, if you have a business and are looking for an Outward Remittance Solution, get in touch with our team for more details!

Frequently Asked Questionson Outward Remittance

How Long Does Outward Remittance Take?

In an ideal scenario, it takes about 1 to 3 working days for outward remittance to complete. However, it’s always advised to ask your concerned bank and rest assured.

Outward Remittance Vs Wire Transfer – Which One To Choose?

Essentially, both outward remittance and wire transfer mean the same – transfer funds from one account to the other. However, outward remittances are ment for sending money to an overseas account. Meanwhile, wire transfers can be made both domestically and internationally.

Additionally, the charges involved in international wire transfers are usually higher than regular bank-led outward remittances since in wire transfer, the money goes to various channels before reaching the recipient. Hence, the cost is high.

What Are The Outward Remittance Charges In India?

Different banks levy different charges to process outward remittances. Please contact your bank branch to know the exact charges.

Is There Any Foreign Remittance Not Chargeable On Tax?

Ideally no tax is deducted for sending an amount less than INR 7 lakhs. However, if a person sends more than INR 7 lakhs as an outward remittance, 5% TCS (tax cleared at source) will apply.

In case a person is repaying a loan taken on foreign education, they’ll be charged 0.5% TCS on an amount that exceeds INR7 lakhs.

Meanwhile, if a person fails to provide their PAN details, they’ll have to pay 10% and 5% tax, respectively for each of the above categories. If the person is an NRI, a surcharge along with education and health cess will also apply.

Is There Any Foreign Remittance Exemption?

There’s a minimum exception of USD 25000 upto which any foreign remittance made under Liberalised Remittance Scheme is permitted without any tax implications. However, any amount transferred beyond the specified limit is subject to a TCS deduction. It may also require special permission from the RBI to process the excess amount.