RBI Guidelines for Outward Remittance: Procedure & Transactions Rules

For outward remittance, many companies and firms need to have FEMA and RBI approval. The RBI Guidelines for outward remittance are different for different entities/organizations.

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    rbi guidelines for outward remittance

    RBI Guidelines for Outward Remittance 2022

    FEMA and RBI are responsible for the FOREX Transaction Rules of India. FEMA and RBI provide guidelines for outward transfer depending on the nature and purpose of the remittance. 

    The FEMA Act has various regulations and schemes that define the limits for remittance to different entities and organizations. After liberalization, the outward remittance rules have been liberalized. 

    Anyone can send money abroad and transfer it without the need for permission from FEMA or RBI. Sending money abroad for any purpose must not be prohibited or illegal. Residents do not have to apply for approval to send money overseas. 

    For outward remittance, many companies and firms need to have FEMA and RBI approval. The RBI Guidelines for outward remittance are different for different entities/organizations.

    Read More: Guide to Indian Company Formation

    What is Outward Remittance?

    Outward remittance can be described as the transfer of money in foreign currency. Outward remittance is a transfer of money from one country to another country. This act is allowed for any purpose approved by the Foreign Exchange Management Act (FEMA).

    Where is Outward Remittance Required?

    These are the cases that require outward remittance:

    • To join an office abroad, you will need to have some initial cash.
    • You will need more money if your family members wish to join you.
    • A relative or friend wants to receive medical treatment in another country.
    • The resident is traveling to another country for personal reasons (Except Nepal and Bhutan).
    • The resident is moving to another country.
    • The resident plans to move to another country for further education.
    • A resident wishes to pay for services and products to a foreign resident (apart from the FEMA-prohibited products listed in Schedule I).
    • The resident would like to purchase investment products from international markets.

    Choose your Outward Remittance

    For any of these reasons, you can send an international remittance:

    • Ensure your education costs
    • You can cover the living expenses of your family member
    • Travel trips booked with pay
    • Medical treatments
    • Buy assets abroad
    • Donating or gifting to an individual or organization

    3 Steps to the Outward Remittance process

    Foreign money transfers have become relatively easy thanks to technology and international cooperation among financial institutions. Three steps are required to send money abroad. Let’s take Monika, who wishes to send money abroad to her son.

    Step 1 – Select the best remittance services

    If Monika can transfer funds to her son’s account if he has a bank account in the country where Monika’s son is studying. She can also use an international wire transfer service for the money.

    She will verify that there are no hidden fees or transaction costs. Next, she will determine if the offered exchange rate is competitive. If she has any questions, she will be able to understand the customer support provided by the remittance provider. 

    Before making the final decision, she will also read through their terms and conditions regarding international remittance.

    Step 2 – Collect the details of the recipient

    Monika will need the full name of her son, bank account details, SWIFT CODE and address of the bank. Monika will need to provide her full name, address, and PAN details.

    She will also need details about the amount to be remitted, the purpose of the transfer, and who will pay the fees. Incorrect details can cause an outward remittance request to fail.

    Step 3 – Complete the transaction

    Digital banking makes foreign outward remittances easy. Monika needs to go to her bank’s web banking page or use the app of her bank on her smartphone to start.

    Select ‘overseas transfers’ and enter the details for the outward remittance. After she has checked all details twice, she can hit the send button and her son will get the financial support he requires within the specified time.

    Read More: Difference Between PAN and TAN of a Company

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    What's the Difference between Inward and Outward Remittance?

    • Outward remittance is a transfer of money from an Indian Account to another account under the LRS Scheme.
    • The inward remittance, on the other hand, means that foreign currency is remitted directly to your Indian account. The fundamental differences between them are not significant.

    RBI Rules - Forex Transaction

    The RBI has one of its most important functions, I.e. to keep track and record all foreign exchange transactions in India. 

     

    However, they have created rules to manage the Indian foreign exchange market called the Foreign Exchange Management Act. FEMA’s Liberalized Remittance Scheme, (LRS) has drafted the primary foreign exchange rule applicable to individuals.

    RBI Guidelines On Money Transfer Abroad/ Outward Remittance

    Below are the RBI guidelines for money transfers abroad/outward:

    The maximum amount of money that can be transferred to India by an Indian citizen

    The Liberalized Remittance Scheme allows residents to send money overseas up to USD 2,50,000 per year. This limit can be used for a single transaction or multiple purchases.

    Information about the LRS Scheme

    PAN cards were not required to make money transfers in foreign countries up to USD 25,000. This rule has been changed in April 2018. 

    It is now mandatory to present the PAN card for any outward remittance transaction from India to overseas, regardless of the amount transferred. This is to ensure that the LRS limit of USD 2,50,000 is not exceeded by a resident in any one financial year.

    Read More: Privatization Of Banks In India  

    Which institutions have been approved by RBI to send money abroad?

    The only institutions approved by RBI to transfer money from India to foreign countries are the following:

    RBI has authorized money changers to carry out money-changing activities, such as money transfers abroad and currency exchange.

    Mandatory RBI Requirements to Send Money from India to an Individual

    To send outward remittances from India, an individual must follow the following requirements:

    The RBI demanded that money sent abroad be disclosed or known by the recipient.

    These two conditions are essential for outward remittance.

    Check out these Popular Remittance Purposes and Their RBI Guidelines Concerning Money Transfer Abroad.

     

    S. No The Purpose of Outward Remittance KYC Documents
    1. Overseas Education a) Indian Passport Copy b) Copy of the Sender's PAN card c) Indian Voter ID, Passport or Voter Card of the Sender. Issued photo ID card d) Purpose evidence (University letter or Prospectus). e) Statement of bank account (if necessary) f) Maintaining Close Relatives Abroad
    2. Student studying abroad: Living expenses a) Indian Passport, Voter ID or Aadhar Card. Issued Photo ID Card b) Copy of the PAN Card c) Proof of Relationship d) Copy of Beneficiary Passport Statement from a Bank Account
    3. Maintaining close relatives abroad a) Indian Passport, Voter ID, Aadhar Card, or any other Govt. Issued photo ID card b) Copy of the PAN Card c) Proof of Relationship (only blood relatives are allowed by RBI). * Spouse * Sister or brother of the resident individual * Sister or brother of the spouse * Sibling or brother of the parents of the concerned person * Any lineal descendant or ascendant of the person involved * Any lineal descendant or ascendant of the spouse of the concerned individual d) Copy of Beneficiary Passport Statement from a Bank Account
    4. Gift Remittance a) Indian Passport, Voter ID or Aadhar Card. Issued Photo ID Cardor PAN Card Copy b) Copy of the Beneficiary's Passport c) Statement of Bank Account
    5. Migration a) Indian Passport, Voter ID, Aadhar Card or any other Govt. Issued photo ID card b) Copy of the PAN Card c) Copy of the Beneficiary's Passport (If money changers require it) d) Statement of bank account (if necessary)
    Tour Remittance A) Copy of the invoice for the Hotel Booking or any other Travel arrangement b) Passport Copy c) Copy of the PAN Card d) Statement of bank account (if necessary).
    International Medical Treatment A) Indian Passport Copy b) Visa Copy, Confirmed Air Ticket Copy c) Copy of the PAN Card d) Proof of purpose (Letter from Overseas Hospital
    Participation in Global Conference / Training A) Invoice or invitation letter from overseas b) Passport, Voters ID, Aadhar Card or other government-issued photo ID cards c) Copy of the PAN Card
    Business Travel abroad Copy of the Company Incorporation Certificate b) Copy of the Company PAN Card c) GST Certificate Copy d) Two address proof copies (Govt approved – BSNL/Shop Est Certificate/Govt Lic Copy etc. e) A request to release foreign currency in a letter on company letterhead, with a seal (Format required by an authorized dealer). f) Passenger’s Passport, Visa & Air Ticket Copy g) Completed A2 Form with company seal (Format required by an authorized dealer). h) A photo ID of an authorized official who signed the request letter
    Private Visit Abroad A) Indian Passport b) Confirmed air ticket showing travel within 60 calendar days c) PAN card d) Valid Visa (Mandatory in some countries) e) Aadhar Card (If required)

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    Banned Transactions Under the LRS Scheme For Outward Remittances

    This is how to explain the LRS Scheme restriction on outward remittance transactions:

    • LRS bans all remittances related to the purchase of lottery tickets, sweepstakes, and banned magazines.
    • LRS does not allow for the purchase of foreign exchange trading or the purchase of FCCB by Indian companies in overseas secondary markets.
    • Remittances of capital to countries or territories that have been identified by the Financial Action Task Force as non-cooperative are prohibited or limited under the LRS.
    • The Reserve Bank of India has also banned remittances to entities deemed as high-risk of committing terrorist acts.

    Methods Approved By RBI for Money Transfer

    The following are the approved methods by RBI to send outward remittances:

    Money transfers are subject to RBI regulations.

    • The funds must be sent to the bank or the money changer account via online bank transfer (NEFT/RTGS/Payment Gateway). It is not permitted to pay cash, cheque, or by card.
    • All money must be transferred from an individual’s personal savings account (Resident Indian).

    How do I provide account details for a beneficiary to send outward remittances?

    Here is the bank information required to process a money transfer or outward payment abroad:

    The SWIFT Code is mandatory for all countries. However, the following codes are required for different countries:
    1. IBAN: The Middle East and Europe
    2. The UK – Sort Code
    3. Australia -BSB code
    4. USA – Routing Number
    5. Canada – Transit code

    Intermediary Bank Fee for Outward Remittances

    Money sent abroad is routed through the intermediary bank before it reaches its recipient. The intermediary bank charges are generally a fee for this service.

    The interbank charges for different countries include the following:

    CNY Bank Intermediary Fee
    US Dollar As high as 20-25 USD
    Australian Dollar As high as 25 AUD
    Euro As high as 25 Euros
    British Pound Up to 18 to 20% GBP
    New Zealand Dollar Up to 28-30 NZD
    UAE Dirham As high as 110 AED
    Canadian Dollar Maximum 38-40 Canadian Dollars
    Swiss Franc From 28 to 30 CHF
    Hong Kong Dollar HKD 240 - 250
    Japanese Yen As high as 5500 JPY
    Saudi Riyal As high as SAR 40
    Singapore Dollar From 28 to 30 SGD
    South African Rand Maximum 450-500 ZAR
    Swedish Krona Maximum 90-100 SEK
    Norwegian Krone As high as 110 NOK
    Danish Krone As high as 110 DKK

    How can one loan an NRI/PIO to close relatives under the Liberalized Remittance Scheme?

    A resident individual can lend money to Non-Resident Indians (NRI) and Persons of Indian Origins (PIO). This refers to close relatives as defined by Section 6 Indian Companies Act, 2013. Transfers can be made electronically or by crossing cheques.

    • The loan must be free from interest and have a minimum term of one year.
    • The loan amount must not exceed USD 250,000 per financial year under the Liberalized Remittance Scheme that is available to resident individuals. It is the responsibility of the lender that the loan amount is within the Liberalized Remittance Scheme limit of USD 2,50,000 in a given financial year.
    • The loan must only be used for the borrower’s expenses and business purposes.

    The loan cannot be used for any of the below-mentioned prohibited activities:

    • The chit funds business
    • Nidhi Company
    • Construction of farmhouses, agricultural, plantation activities, and Real Estate business.
    • Transacting in Transferable Development Rights

    Notice: The definition of Real Estate Business does not include the construction of commercial or residential premises, bridges, roads, townships, or other similar structures.

    • The NRO A/c (or PIO) must credit the amount of the loan. Credit from such loan amount must not be considered an eligible credit to NRO A/c.
    • The loan amount cannot be remitted in India.
    • Inward remittances must be made to repay the loan via regular banking channels or debit to the Nonresident Ordinary (NRO), Nonresident External (NRE), Foreign Currency Nonresident (FCNR), an account of the borrower.

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    Conclusion

    The Reserve Bank of India, the regulator of foreign trade transactions and India’s apex banking institution, has established guidelines regarding the outward remittance of funds to India. 

    These guidelines apply to both residents and non-residents. Individuals and companies need to be familiar with the policies and guidelines.

    That’s where Odint consultancy comes in. We can help you understand and guide you during the entire process.

    FAQ’s

    The Liberalism Remittance Scheme allows all residents, including minors to freely remit USD 2,50,000 per fiscal year (April to March) for any permitted capital account transaction or current or capital account transaction.

    • Retail Outward Remittance Applications – A2 cum LRS Declare.
    • PAN card copy.
    • Invoice or bill for credit card
    • If the credit card issuing banks have appointed a collection agency to collect dues, a letter from the collection agency quoting credit-card details i.e. The card holder’s name, credit cards number, and the amount due

    No law restricts the amount you can send or receive. However, daily transaction limits are often set by financial institutions and money transfer companies.

    Outward remittance can be defined as a transfer of foreign currency by an Indian citizen to a beneficiary in another country (except Nepal or Bhutan) for legitimate purposes, as allowed under the Foreign Exchange Management Act (FEMA) 1999.

    There is no minimum amount for remittance. There is an Rs. 4-day limit on the initial remittance made to an overseas beneficiary after beneficiary activation. 5,00,000/-.