There are mainly two types of remittance i.e. Inward Remittance and Outward Remittance. Transferring money to your home country from a foreign country is known as an inward remittance while money transfer to a foreign country from your own country is considered as an outward remittance. Both these processes of transferring money abroad are done strictly as per the guidelines of the Reserve Bank of India under the Liberalised Remittance Scheme (LRS). Let’s understand both the types of remittances and how they impact the lives of Indians living abroad.
Table of contents
What is an Inward Remittance?
Inward remittance refers to the process of transferring money from a foreign country to your home country. The source of income in this case can originate from various sources such as earnings abroad, gifts, investments, or payments for services rendered. For Indians residing overseas, inward remittance is a major financial backbone as it supports their families back home. They can also send money for investment in local ventures, or meet financial obligations and that also will be termed as ‘inward remittances’. You also have to pay tax on Foreign Remittance, as per the Liberalised Remittance Scheme.
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Major Features of Inward Remittance
Many Indians working abroad send a significant part of their earnings back home to support their families. Inward remittances serve as a major financial backbone for families in India, covering expenses like education, healthcare, and daily living. Apart from sending money to family, people also send money as donations, investments or to their personal NRE/NRO accounts.
- People residing in a foreign country often use inward remittances to invest in diverse financial instruments, real estate, or businesses in India.
- This not only secures their financial future but also contributes to the economic growth of their home country.
- Non-Resident Indians (NRIs) can maintain NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts, specifically designed to manage foreign income.
- Inward remittances are credited to these accounts, offering tax benefits and ease of transactions.
What is Outward Remittance?
Outward remittance is when people send money from their home country (India) to a foreign country. Indians living abroad initiate outward remittances for various purposes like investments, education expenses, or supporting family members residing overseas. For example, if you are a student studying in New York and your parents are sending you money for your expenses, then it will be called an outward remittance.
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Major Features of Outward Remittance
With a rising number of Indian students pursuing higher education abroad, outward remittances are often used to cover tuition fees, living expenses, and other educational costs. Students living in foreign countries get money from their parents to meet their day-to-day expenses and this is one of the major segments of outward remittance.
- Indians living abroad may explore investment opportunities or establish businesses in foreign countries for which it will be necessary for them to receive outward remittances for capital infusion and operational expenses.
- As families become more dispersed globally, Indians residing in one country might send financial assistance to family members living in another, contributing to outward remittance flows.
- All outward remittances shall be made under the bonafide purposes listed under the Foreign Exchange Management Act (FEMA) of 1999.
Important Guidelines on Remittance
International money transfer is completely monitored by the monetary authority of a country. In India, the Reserve Bank of India closely monitors all the large and small money transfers abroad and the funds received from a foreign country. Always check the maximum limit for transfers and make all transactions legitimately as directed by the RBI.
- Always make transactions through authorised service providers like Western Union, ICICI Banks etc.
- Keep all the electronic or offline receipts safe for future reference.
- Check all the terms and conditions specified by the merchant/service providers and then initiate the transaction.
- Never use unauthorised transfer channels for low transaction charges as you may lose your money.
Difference between Inward and Outward Remittance
There are various differences between Inward and Outward Remittance, a few of them are listed below:
| Parameter | Inward Remittance | Outward Remittance |
|---|---|---|
| Meaning | Receipt of funds | Transfer of funds |
| Countries | Funds receiving countries | Countries sending money |
| Role | Passive receiver | Initiator of transaction |
| Payment methods | Bank transfers, apps | Bank transfers, apps |
| Turn Around Time (TAT) | Very low | Very low |
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FAQs
Money transferred by individuals from foreign countries to their home country for their families and friends is usually termed as Inward Remittance.
Some of the renowned money transfer service providers in India with good track records are Western Union Money Transfer, ICICI Bank Forex Services, Axis Bank etc.
You can save taxes on foreign remittances by using an NRI account. Funds can be transferred abroad through an NRI account without incurring any TCS charges.
The tax amount i.e. TCS can be set off against any tax liability that arises during the year while filing the tax return at the end of the year or refunded to the taxpayer in case TCS credits exceed the actual tax liability at the year-end.
As per the new Liberalised Remittance Scheme (LRS), no TCS shall be charged on up to Rs 7 lakh of foreign remittance spent on education or health purposes.
Inward and outward remittances play important roles in the financial management of Indians living abroad. These transactions not only connect families across borders but also contribute to the economic development of both India and the host countries.
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