In simple terms, remittances mean the transfer of funds. This term has been derived from the word ‘remit’, which means to send back. It refers to the transfer of money from individuals working in a foreign country back to their home country to support their families. People who are living in developing countries which have slow-growing economies majorly depend on foreign remittances as they receive it from their family member who is working abroad and looking after them.
In today’s interconnected world, it holds significant importance for millions of Indians residing abroad. Let’s understand in detail how it works and what are the modes.
Table of contents
What is Remittance?
The process of sending money abroad to your family or any individual can be called a remittance. The term is often used for transferring money to family, relatives, friends etc. You can make a remittance from abroad by using electronic fund transfer systems such as wire transfer, or through transfer service providers like Western Union, Banks etc. There are mostly two types of remittances- Inward and Outward Remittances.
Mostly, there is a remittance fee charged by the platform or bank you are using to make domestic or international transfers. This helps them transferring the money to the account of the beneficiary within minutes. Let’s understand the type of remittances that are sent from abroad.
Purpose of Remittance
Transfer from an individual can be made for different purposes like gifts or donations, money from family, business projects, capital infusion etc. All these transfers made towards the family or for the business are remittances. Check the details on each type below:
- Personal Remittance: This type of remittance refers to sending money for family support, education, medical expenses, or other personal needs. It is often a regular practice among Indian expatriates, that personal remittances contribute significantly to the well-being of their families back home. For example, Sunil is the sole breadwinner of his family. He resides in Canada and works at a hotel. His family is in India and every month Sunil transfers INR 25,000 to his father’s account. This particular transfer can be called a personal remittance.
- Business Remittance: Expatriate entrepreneurs or investors may send money to India for business purposes, such as capital infusion, expansion, or project funding. It fosters economic growth by connecting global resources with local opportunities. This can be called a business remittance.
- Gifts and Donations: Indians living abroad may send monetary gifts or donations to support community projects, religious institutions, or charitable causes in their home country. They can also send money as a gift to their family members like brothers, sisters and cousins etc.
Also Read: Do you know how much commissions and charges you have to pay while making money transfers? Check this blog and know all about Cheapest International Money Transfer
Types of Remittance
Foreign remittance can be categorized into two main types: inward and outward. Inward remittance refers to funds transferred into a country from abroad by individuals working overseas sending money back to their home country. Outward remittance, on the other hand, involves sending funds from a home country to a beneficiary in another country for various purposes such as family support, investments, or business transactions.
Inward Remittance
Outward and inward remittances are the type of remittance classified based on the sender and receiver of the money. Inward remittance refers to the transfer of money from a foreign location to a recipient within the home country. For example, when an individual in India receives money from someone overseas, it is considered an inward remittance. This could include funds sent by family members, friends, or even business transactions originating from abroad.
Outward Remittance
Outward remittance involves the transfer of money from an individual’s home country to a foreign destination. When an individual in India sends money to someone living abroad or conducts financial transactions outside the country, it is categorised as an outward remittance. This can be done for various purposes, such as supporting students studying overseas, investing in foreign ventures, or covering expenses related to international travel.
Modes of Remittances
Now that you know about the types of remittances, let’s know about what are the modes of remittances. Well, there are various ways and methods through which remittances can be made. These modes of remittance include bank transfers, online payment platforms, and money transfer services like Western Union. Here’s a detailed explanation of the modes of remittances-
Bank Transfers
This is one of the most common methods of remittance. It involves transferring money directly from one bank account to another through bank transfer, EFT, international wire transfer etc. It can be done through online banking platforms, mobile banking apps, or by visiting a bank branch.
Online Payment Platforms
Services like PayPal, Venmo, and TransferWise allow users to send money electronically to individuals or businesses. Users can fund their transactions using bank accounts, credit cards, or other sources.
Money Transfer Services
Companies like Western Union, MoneyGram, and Ria Financial Services offer convenient ways to send money internationally. Senders can initiate transactions online, through mobile apps, or by visiting physical agent locations.
Prepaid Cards
Certain prepaid cards can be used for remittance, allowing users to load funds onto the card and then transfer them to recipients. These cards may offer additional features such as ATM withdrawals or online purchases.
How to Send Remittance?
There are multiple ways to make remittances online. You can transfer money through bank transfer, EFT, wire transfer etc. Sending remittance to India involves several steps, and the process can vary depending on the method you choose. Let’s have a look at the common methods:
- Select a Remittance MethodChoose a suitable method for sending money to India. Common options include bank transfers, online money transfer platforms, etc.
- Verify Identification: Ensure you have all the necessary identification documents required by the chosen remittance service. This may include your passport, proof of address, and other relevant documents.
- Provide Recipient Information: Enter all the details properly of the recipient in India, including their full name, address, and bank account information. Double-check this information to avoid any errors.
- Confirm Exchange Rates and Fees: Be aware of the exchange rates and fees associated with the bank transfer. Banks may charge fees for international transfers, and exchange rates can impact the final amount received by the recipient.
Also Read: Worried about taxes on Remittance? Check this blog and learn all about TCS on Foreign Exchange and Remittance
TCS on Remittance Transaction
The government of India have framed some laws regarding the TCS on all remittance transactions. The Reserve Bank of India keeps revising the laws as per the economic conditions and the guidelines of the government. All the transfer remittances, travel and investments under the LRS are subject to TCS (Tax Collected at Source).
- As per the last update, from July 1, 2023, 20% TCS will be applicable on all remittances, except those which are being made for education purposes or medical grounds.
- If the total amount for medical and educational purpose transactions exceeds INR 7 lakhs, a TCS of 5% will be applicable.
- The deductions can be claimed at the time of filing taxes as an income tax refund or as a credit while calculating the advance taxes.
- Any payment made with an international credit card or debit card up to an amount of INR 7 lakh in a financial year will be excluded from the LRS limit and TCS will not be applicable on such transactions.
FAQs
Sending money from abroad to your friends and family in your home country as a gift, donation or any other purpose can be called a remittance.
You can transfer money through any online mode like direct bank transfer, Wire transfer, or fund transfer through service providers like Western Union etc.
Countries that get the most remittances from India are Bangladesh, China, Nepal, Sri Lanka and the United States of America (USA).
There are two types of remittance- Inward Remittance and Outward Remittance.
According to the Liberalised Remittance Scheme (LRS) of the RBI, Indian residents can remit a maximum of USD 250,000 in a financial year to individuals living overseas. The maximum limit includes both capital and current account transactions.
These modes of remittance include bank transfers through EFT or international wire transfers, online payment platforms, and money transfer services like Western Union.
Remittance plays a very important role in the lives of Indians living abroad. It helps to bridge the geographical gap and ensure the well-being of their family. As technology continues to develop, the scope of remittance is likely to see further advancements, providing even more convenient modes of money transfer.
To know more about the loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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