Foreign remittance enables you to support your families in different parts of the world financially.
The process of transferring money from abroad to your family or other individuals in your home country is termed an international remittance. You can typically initiate a foreign remittance through an electronic payment system via channels like banks or money transfer service providers. Such service providers charge you a fee for the services rendered to you. If you live and work abroad, there will be several occasions when you may want to send money to your home country. You may wish to financially support your loved ones back home or come to the aid of your country during a crisis. In all such cases, foreign remittances can help you transfer funds seamlessly. Let us find out more about foreign money transfers in this article.
A Foreign Outward remittance is defined as transferring foreign exchange currencies or funds by a person from India to any beneficiary living outside India (except those residing in Nepal and Bhutan) for a permissible bonafide purpose under the Foreign Exchange Management Act (FEMA), 1999.
You can send or remit money to your family or friends who need cash urgently with outward remittance. These remittances are done on a secure banking network, thus reducing the possibilities of fraud and financial harm to the sender and recipient.
Whenever you make a foreign money transfer, you will have to pay a fee. The exact charges will depend on the type of bank account you and the recipient have and the transaction details. It also depends on the money transfer service you use and the transfer channels utilised by your service provider.
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The Finance Act 2020 introduced new provisions for collecting tax at source (TCS) on international remittances that came into effect from 1st October 2020.
A 5% TCS is now imposed on all foreign remittances under the Liberalised Remittance Scheme (LRS). This tax is applicable on foreign transfers exceeding INR 7 lakh in a financial year. However, if the remittances are funded by loans for higher education abroad, the TCS limit is reduced substantially to 0.5% for amounts exceeding INR 7 lakh. Also, if you fail to provide the necessary documents, specifically the PAN card, while initiating such remittance, the TCS will increase to 10%.
TCS is typically collected by the authorised dealer or bank or the service provider assisting with the foreign money transfer. It is usually collected at the first point of transaction, i.e., when you initiate an international remittance transaction.
After completing the transfer, the bank receiving the fund transfer holds the amount for procedural completion and compliance checks. As the beneficiary of the fund transfer, you need to contact your bank and provide all the necessary documents as asked to verify that you are the intended beneficiary.
Generally, if you request a remittance before the cut-off date of a bank, it will typically take 1-5 business days. If it is the first time, a remittance may take up to 3-4 working days.
Under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India, resident individuals are permitted to remit a maximum of $250,000 abroad in any given financial year. You may pay the funds for various purposes like donations, medical expenses, overseas education, investment in property, gifts, purchasing items on international e-commerce websites or international stocks and so on. Typically, you have to provide the reasons for the foreign money transfer when initiating it.
You need to provide a self-declaration stating your relation with the beneficiary, and government-issued ID proof and a copy of your PAN card to process a foreign money transfer.
When money is sent abroad, a unique reference code is given to you after you provide the details of the beneficiary. The beneficiary has to provide proper ID proof and the same reference code to collect the amount successfully.
Foreign remittance is an incredibly safe and secure method of transferring money from abroad. Banks maintain the utmost secrecy, and your account details are encrypted and coded, and secure firewalls are used during online foreign account transactions.
The TCS on all transactions under LRS will be applicable from 1st October 2020. However, to track the threshold limit of INR 7 lakhs, all transactions under LRS made from 1st April 2020 would be considered.
Remittances that are below INR 700,000 in a financial year are exempted from TCS. Also, payments made towards foreign education made from obtaining an education loan from a financial institution in India are subject to 0.50% TCS.
Besides enabling you to ensure that your family members are financially secure, foreign money transfers play a significant role in helping the economies of small and developing countries. Such remittances can help raise people’s living standards in nations with low income and help them fight poverty. The top recipients of foreign money transfers include India, China, Mexico, and the Philippines.
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*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.