The Reserve Bank of India (RBI) plays a role in the governance and regulation of foreign exchange transactions within India. The guidelines set by the RBI for remittance as specified in the Foreign Exchange Management Act (FEMA) are vital for individuals and organizations participating in financial activities. These guidelines have developed over time adapting to India’s increasing integration into the economy.
In this article we will provide an overview of the RBIs guidelines for remittance including their purpose, limitations, approved institutions, mandatory requirements and prohibited transactions.
Understanding Outward Remittance
Sending money abroad known as remittance refers to the transfer of currency, from an Indian resident (whether an individual or a company) to someone located outside India except, for Nepal and Bhutan. These funds can be used for purposes. It is important to follow the guidelines specified in the Foreign Exchange Management Act (FEMA) strictly.
Purposes Requiring Outward Remittance
Several situations warrant outward remittance:
1. Employment Abroad: If an individual needs to initiate money transfer to join an office abroad.
2. Family Support Abroad: When family members plan to join someone working abroad, additional funds may be required.
3. Medical Treatment: If an individual or their family member needs medical treatment in a foreign country.
4. Personal Travel: When a resident is traveling to another country for personal reasons (excluding Nepal and Bhutan).
5. Relocation: When a resident is relocating to another country, whether for work or personal reasons.
6. Education: Funds for overseas education, including tuition fees and living expenses.
7. Investments: For purchasing investment products from international markets.
8. Business Transactions: Paying for products and services from foreign companies (excluding prohibited items mentioned in Schedule I of FEMA).
RBI Guidelines on Outward Remittance
The RBI guidelines on outward remittance are as follows:
1. Maximum Transfer Limit:
Under the Liberalized Remittance Scheme (LRS), a resident individual can transfer money overseas up to a limit of USD 2,50,000 per financial year. This limit can be used for one large transaction or multiple smaller ones.
2. PAN Card Requirement:
Since April 2018, it has become mandatory to provide the Permanent Account Number (PAN) card for all outward remittances, regardless of the transfer amount. This rule ensures compliance with the LRS limit.
3. Restrictions on Entities:
The Liberalized Remittance Scheme is not available to corporates, partnership firms, trusts, etc., and is exclusively meant for resident individuals.
Institutions Approved by RBI for Sending Money Abroad
Only specific institutions approved by the RBI are authorized to transfer money from India to foreign countries. Some of these institutions include:
Authorized Banks: Indian banks authorized by the RBI to facilitate outward remittances.
Authorized Money Changers: Licensed money changers that comply with RBI regulations.
It’s important to note that online payment platforms like PayPal are not approved by the RBI for personal payments abroad but can be used for business transactions.
Mandatory RBI Requirements for Outward Remittance
To perform outward remittance from India, individuals must fulfill the following mandatory requirements:
1. Purpose Declaration:
Individuals must declare the purpose of the remittance and provide Know Your Customer (KYC) documents to the chosen bank or money changer facilitating the transfer.
2. KYC Documents:
The required KYC documents may vary based on the purpose of remittance but often include:
- Indian Passport Copy of the sender
- Sender’s PAN Card Copy
- Other Government-issued Photo ID (e.g., Voter ID, Aadhar Card)
- Purpose proof (e.g., University Letter for education, medical documents for treatment)
- Bank account statements (if necessary)
Popular Purposes of Remittance and Corresponding RBI Guidelines
The following table illustrates some common purposes of remittance and the associated KYC documents required:
| S.No. | Purpose of Remittance | KYC Documents |
| Overseas Education | Sender’s Indian Passport CopySender’s PAN Card CopyOther Government-issued Photo IDPurpose proof (University Letter)Bank Account statement (if required) | |
| Living Expenses of Students Studying abroad | Other Government-issued Photo IDPAN card copyRelationship Proof Beneficiary Passport CopyBank Account statement | |
| Maintenance of Close Relative Abroad | Sender’s Indian Passport CopyPAN Card CopyRelationship Proof (as specified by RBI)Beneficiary Passport CopyBank Account statement | |
| Gift Remittance | Sender’s Indian Passport CopyPAN card copyBeneficiary’s passport copyBank account statement | |
| Emigration | Sender’s Indian Passport CopyPAN Card CopyBeneficiary’s Passport Copy (if required)Bank Account statement (if required) | |
| Tour Remittance | Invoice copy for Travel arrangementsPassport CopyPAN Card CopyBank account statement (if required) | |
| Medical Treatment Abroad | Sender’s Indian passport CopyVisa Copy or Confirmed Air Ticket CopyPAN Card CopyPurpose Proof (Letter from Overseas Hospital) | |
| Participation in Global conference/Training | Invitation letter or invoice from overseasPassport, Voter ID, Aadhar Card or other IDPAN Card Copy | |
| Business Travel Abroad | Company incorporation certificate copyCompany PAN Card CopyGST Certificate CopyAddress ProofRequest letter from the company with sealPassenger’s Passport, Visa and Air ticket copyFilled A2 Form with company sealID Proof of authorized official signing the request letter | |
| 10. | Private Visa Abroad | Indian PassportConfirmed Air TicketPAN CardValid Visa (mandatory for some countries)Aadhar Card (if required) |
Prohibited Transactions Under LRS Scheme
Certain transactions are restricted or prohibited under the Liberalized Remittance Scheme (LRS) for outward remittance:
1. Purchase of Prohibited Items:
Remittances related to the purchase of lottery tickets, sweepstakes, banned magazines, or other items listed in Schedule 2 of the Foreign Exchange Management Rule 2000 are prohibited under LRS.
2. Trading in Foreign Exchange:
Remittance for trading in foreign exchange and the purchase of Foreign Currency Convertible Bonds (FCCB) issued by an Indian Company in the overseas secondary market are not allowed under LRS.
3. Capital Account Remittances:
Capital account remittances to countries identified as “non-cooperative countries and territories” by the Financial Action Task Force (FATF) are either prohibited or subject to limitations under LRS.
4. Entities with Terrorism Risk:
Remittances made to entities identified as a significant risk for committing acts of terrorism are banned under the LRS Scheme by the Reserve Bank of India.
Methods Approved by RBI for Transfer of Money
The RBI mandates that funds to be transferred must be sent to the bank or chosen money changer’s account only through online bank transfer methods such as NEFT, RTGS, or Payment Gateway. Cash, cheques, or card payments are not permitted for outward remittances. The money must originate from the individual’s personal savings account held as a resident Indian.
Account Details Required for Beneficiary
To process outward remittance, the following bank details of the beneficiary are required:
- SWIFT Code: Mandatory for all countries.
- Additional Country-specific Codes: Depending on the recipient’s country, additional codes like IBAN (for the Middle East & Europe), Sort Code (for the UK), BSB Code (for Australia), Routing Number (for the USA), and others may be needed.
Intermediary Bank Charges
When sending money abroad, it often passes through intermediary banks before reaching the beneficiary. These intermediaries may charge fees for their services. The intermediary bank charges vary by currency and country and can range from a few dollars to higher amounts. It’s crucial to be aware of these charges when planning an outward remittance.
Granting Loans to NRI/PIO Close Relatives
A resident individual in India can lend money to a Non-Resident Indian (NRI) or Person of Indian Origin (PIO) who is a close relative, as defined under Section 6 of the Indian Companies Act, 2013. However, certain conditions apply:
- The loan must be interest-free and have a minimum maturity period of one year.
- The loan amount must not exceed the Liberalized Remittance Scheme (LRS) limit of USD 2,50,000 per financial year available to resident individuals.
- The loan must be used for the borrower’s personal requirements or business purposes, excluding prohibited activities such as chit fund business, Nidhi Company, agricultural or plantation activities, and trading in Transferable Development Rights (TDRs).
- The loan amount must be credited to the borrower’s NRO (Non-Resident Ordinary) account.
- Repayment of the loan must be made through inward remittances, debiting the NRO or NRE (Non-Resident External) account of the borrower, or from the sale proceeds of relevant securities, shares, or immovable property for which the loan was granted.
Conclusion
Understanding the RBI guidelines for outward remittance is crucial for individuals and organizations engaged in international financial transactions. These guidelines ensure compliance with Indian regulatory requirements and prevent illegal or prohibited activities. Although the regulations have become less strict, over time it remains crucial to stay well informed and adhere to the guidelines to prevent any complications or tax related problems. The oversight and regulation of foreign exchange transactions by the Reserve Bank of India play a role in integrating India’s economy into the stage.
