Overview of RBI Guidelines for Outward Remittance

RBI Guidelines for Foreign Inward Remittance

If any amount is transferred from any foreign country and is received in India, it is called an ‘Inward Remittance’. It defines the flow of money in the transaction. RBI has issued certain guidelines related to inward remittance which can be explained as follows:

• There are two most common arrangements for foreign inward remittance: RDA or Rupee Drawing Arrangement and MTSS or Money Transfer Service Scheme.
• Limits under RDA: Under RDA, if the remittance is done for personal purposes, then there is no limit on the amount. But, there is a limit of INR 15 lakh for trade-related inward remittances.
• Under MTSS, there’s a limit on the amount of foreign inward remittances (USD 2,500) as well as the frequency of remittances (30 in a calendar year).

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What are the Areas Requiring Outward Remittance?

There can be multiple reasons for conducting outward remittances from India to abroad. Some of the areas requiring outward remittance are as follows:

• For joining work in an office abroad
• For making arrangements for the family to join you when you shift for work abroad
• For medical treatment abroad for someone
• For tourism purpose
• For studies in a foreign university
• For buying goods and services from another country
• For investment purposes

 

What is the Difference Between Inward Remittance and Outward Remittance?

Remittance essentially means a transfer of money from one account to another. Let’s understand the difference between inward and outward remittance.

Inward remittance is the transfer of money from a bank account in another country to a bank account in a domestic country. It explains the flow of money domestically. It is usually not taxable. But if any income is generated out of such inward remittance, it becomes taxable. For instance, receiving an inheritance is not taxable but interest income generated out of it is taxable.

RBI Guidelines for Outward Remittance, on the other hand, means a transfer of money from a bank account in a domestic country to a bank account in a foreign country. It explains the flow of money from India to abroad. It is taxable if it exceeds a certain threshold.

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RBI Rules Related to Forex Transaction

All the forex transactions come under the ambit of The Reserve Bank of India. The RBI has also laid down certain rules related to forex transactions which are explained below:

• There’s a limit of USD 2,50,000 on outward remittance which means that you can transfer a total of USD 2,50,000 in a financial year (as an individual transaction or aggregate of total transactions in a financial year).
• This limit includes a total of current and capital transactions.
• It is necessary to produce PAN while incurring outward remittances. This is done to keep the transfers under the prescribed monetary limits.
• Only financial institutions approved by the RBI can conduct outward remittances. 

What are the RBI Restrictions on Foreign Remittance?

Below are certain restrictions that the RBI has imposed on Foreign remittances. 

Purpose Restrictions: It is important to note that foreign transactions that you do are not prohibited by the RBI. For instance, capital transactions for speculative activities are prohibited.

Limits on Remittance Amounts: There is a limit of USD 2,50,000 for outward remittances in a financial year.

Prohibitions on Specific Countries: It should always be checked that the country you are doing outward remittances to is not on the prohibition list of the RBI for remittance purposes.

What is the Maximum Limit for Outward Remittance?

The Reserve Bank of India has issued a Liberalised Remittance Scheme or LRS wherein all the guidelines are mentioned that one needs to follow while conducting outward remittance.

It is mentioned therein that there’s a limit of USD 2,50,000 for RBI Guidelines for Outward Remittance in a financial year.

This limit includes both current and capital account transactions. It is also important to note that there’s no limit on the frequency of remittance.

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

Here’s a list of generally asked details or information for an RBI Guidelines for outward remittance. However, your service provider may ask for additional information as they deem necessary:

• Bank name
• Address of the bank
• Name of the Account holder
• Account number
• Bank Swift Code

 

What is the TCS Rate for Foreign Remittances?

Forex transactions are also covered by the Income Tax Act, of 1961. As per section 206C(1G) of the Act, it is mandatory for authorized dealers to collect TCS on remittances exceeding INR 7 lakhs in a financial year.

The Indian Government increased the tax collected on foreign remittances from 5% to 20%. This change significantly impacted Indian residents who transfer money abroad, be it for vacation, education, gifts, etc. 

Conclusion

Since incurring transactions across international borders are governed by apex institutions of the nation, it is important to understand the issued guidelines so as to avoid any legal consequences. It is also crucial to make informed decisions about RBI Guidelines for Outward Remittance. This blog contains all the necessary information that you may need firsthand to conduct an RBI Guidelines for outward remittance.

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