Remittance

Definition

India receives more remittance money from abroad than any other country on earth, over $100 billion annually, primarily from the Indian diaspora in the Gulf, North America, and the UK. That's inward remittance: money flowing into India. But there's a whole other side (outward remittance) that affects every business paying a foreign supplier, every parent funding a child's overseas education, and every investor buying US stocks. The rules, limits, and compliance requirements differ sharply between the two, and getting them wrong can mean FEMA violations.

For individuals, outward remittance operates under the Liberalised Remittance Scheme (LRS), which allows residents to send up to USD 2,50,000 per financial year for permitted purposes: education abroad, overseas travel, medical treatment, foreign investments, maintenance of relatives. All LRS transfers must go through authorised dealer banks, and since the Finance Act amendments, Tax Collected at Source (TCS) under Section 206C(1G) applies. The rates vary (5% for education funded by loans, 20% for other purposes above Rs 7 lakh) and this TCS is adjustable against your income tax liability, but the upfront cash impact is real.

For businesses, the rules tighten further. Export proceeds must be repatriated to India within 9 months for goods and 1 year for software, tracked through the Export Data Processing and Monitoring System (EDPMS). Import payments must follow RBI's trade credit norms. Documentation is everything: FIRCs (Foreign Inward Remittance Certificates) for inward remittances, A2 forms for outward, shipping bills for exports, and import invoices for inward payments. These documents are essential for FEMA compliance, GST zero-rating of exports, and satisfying auditors. Miss a deadline or lose a FIRC, and you're looking at regulatory complications that can take months to resolve.

Key Points

• India is the world's largest inward remittance recipient ($100B+ annually). Outward remittances are governed by FEMA and LRS.
• LRS allows individuals to remit up to USD 2,50,000/year for education, travel, investment, medical treatment, and family maintenance.
• TCS under Section 206C(1G) applies to LRS remittances: rates range from 5% to 20% depending on purpose and amount.
• Export proceeds must be repatriated within 9 months (goods) or 1 year (software) and reported through EDPMS.
• FIRCs are your proof of export payment receipt: essential for GST zero-rating and satisfying audit requirements.
• Every remittance (inward or outward) must route through RBI-authorised dealer banks. No exceptions.