inward and outward remittance

What is inward and outward remittance? (Non Trade)

Scenario A: Mr. Sharma has a son abroad who is studying his master’s program in London. In the first week of every month, he sends across a certain amount of money in INR which is converted by the transacting bank into pounds and credited into his son’s operating account in London.

Scenario B: Mrs. Verma is a widow who is currently residing in India and her son is a successful engineer working in the United States of America. Every month, he sends across some money in USD which is then converted by the transacting bank into INR and credited into her operating account in India.

Scenario A is a perfect example of outward remittance while the latter is technically termed as inward remittance.Before we start getting into all the intricate details about inward and outward remittances, let us first understand what these terminologies exactly mean in the financial industry.

Inward remittances mean receipt of funds acquired either locally or from offshore locations (or accounts), while outward remittances refer to funds that are transferred to recipient(s) located within the country or internationally.Most commonly, these terms are used for financial transactions that are international rather than domestic in nature. So, let’s focus on the international aspect in detail.

Also, transactions between parties located in the same nation are simple and most commonly conducted through demand drafts, cheques, net banking, NEFT or RTGS and not fraught with too many restrictions and regulations.

It is a well-known fact that wherever money is involved, there will be a section of individuals who use it for money laundering or other similar nefarious activities. Thus, like every other financial process, inward and outward remittances between Indian and different nations is bound by regulations issued by RBI’s Foreign Exchange Management Act 1999 (FEMA). According to this act, remittances for a said individual cannot exceed USD 200,000 during the financial year, while NRIs/PIO are restricted to 1 million USD from proceeds that are realised through sale of assets or from domestic accounts. The Reserve Bank of India keeps a track of the same through the PAN number (mandatory) that is shared during the transaction. The rules for remittances defined by FEMA are generally applicable across all nations except Nepal and Bhutan, which have special guidelines in place for money transfers.

FEMA approves remittance for any of the following activities:
1-Donation for causes or gifts.
2-Funding towards medical treatment when the said patient is abroad.
3-Towards expenses occurring for an international education.
4- Maintenance of family or close relative abroad.
5- Personal or business travel.
6- Proceeds from any sale of assets or from domestic deposits (applicable for NRIs/ PIO)

The above stated categories are again internally subjected to certain regulations pertaining to limits, submission of certain documents, pre-declaration to the regulator etc. For example, on a personal visit abroad, the eligibility is limited to USD 10,000 while for business trips it is USD 15,00

Inward Remittances

International inward remittances can be obtained through the FEMA approved vendors like Western Union, MoneyGram or any registered bank in India. Typically, the inward currency is converted on the current day exchange rate and paid to the recipient after deducting the charges which in total normally ranges from 1-2% of the total transaction value. If money is transacting through FEMA approved vendors like Western Union, account details of the sender or receiver are not required. The deposit and withdrawal happens through the nearest branch of the vendor on sharing the identity credentials.

Outward Remittances

Money can be sent to abroad locations via two methods:
1. Foreign demand draft
2. SWIFT/Wire transfer

Currently, only banks in India are approved to transmit money out of India.The demand draft is the cheapest form of sending money to abroad locations, but the process is time consuming. This is because the demand draft has to be sent to the receiver and is then realised on receipt. However, during wire transfer, the amount is credited the next working day but is levied with substantially higher charges.

For more complete information, visit the Reserve Bank of India (RBI) website which clearly states the rules and regulations as well as complete information on the operational technicalities for remittances.