International Money Transfer Rules You Should Know!

International money transfers should never be a burden again!

This blog covers some of the essential international money transfer rules and regulations you should know.

With that being said, let us start with some statistics to understand the status of international money transactions in India today.

Do you know? India, in particular, has recently made significant progress in accepting modern financial solutions, and following this, international money payments get more efficient and sophisticated than they have ever been.

According to analysts, the digital remittance market in India has increased dramatically in the past from $614 million in 2017 to $1.377 billion by 2020. And, it is estimated that it will rise to approximately $2.7 billion by 2024 in the future with a compound annual growth rate of 18.2 percent. In another study, according to the Ministry of Overseas Indian Affairs, India receives over 12% of all worldwide remittances, making it the world's top.

Not just in India but also in all the other countries, the government has particular banking and foreign exchange policies and standards. In India, the Reserve Bank of India takes the authority of this. And, the Foreign Exchange Management Act (FEMA), 1999 regulates these Cross-border payments.

The law has two aims in particular.

1.  is to make sure that money sent from India is not containing any criminal allegations and ensure that such external transfers are not utilized for illicit reasons.

2. by guaranteeing that there is no rapid cash outflow from India that can have a detrimental effect on the economy, the Reserve Bank of India stabilizes local currency markets.

Here, simple misunderstandings or ambiguities to respect the laws governing the remittance might arrest you for punishing as per the conditions.

Remittance - Inward & Outward

• In simple words, remittance is just transferring money to someone as a payment or a present.
• Outward remittance usually includes sending money to some foreign country from India.
• The Inward Remittance is made when a person who resides in a foreign country sends money to India.

Outward Remittance Rules in India

(Liberalized Remittance Scheme or LRS)

Liberalized Remittance Scheme or LRS, the outward remittance law formulated by the Reserve Bank of India, regulates how Indian citizens can receive money, how many of them can transfer money out of the nation's frontiers, and for what all purposes are permitted. Previous to the Implementation of LRS, unless specific permission of the Reserve Bank of India was granted, outward transfers were considered to be forbidden.

These limitations are variable because they incorporate modifications that can be made from time to time to the conditions of the law. Later, this has become one of the most convenient ways to send money from abroad to individuals outside the country.

RBI and FEMA have established certain standards and protocols for the protection of people making external payments. According to this, international payments are only possible through banks and money changers having the Authorized Dealer License. Here, the purpose of the transfer must be explained by the sender.

Under the law, 250000 $ is the maximum possible international outward remittance a person can make in a year. As long as the amount restriction is maintained, there is no upper limit on the number of transactions. And, with each foreign money transfer, the sender must provide their PAN card details.

Furthermore, some KYCs and other documents are also to be provided to the bank depending on the purpose of the transfer. If a parent transfers money to his/her children studying abroad, must send a letter from the university to prove its authenticity and the purpose of the remittance

Outward Remittances for MNCs in India

The diversity and uniqueness of the Indian market have led many foreign companies to establish themselves in India as we see it today. The monetary gains earned by these multinational companies may have to be transferred to their own country or other countries. These can be income, profits, or dividends earned by them.

Here, the money can be transferred after paying the tax as per the law. But they face some restrictions on withdrawing investment shares in sectors such as defense. This is called the lock-in period. Accordingly, the transfer of shares of a particular investment is impossible within a specified period of time.

Inward Remittance Rules in India

As mentioned previously, Inward Remittance is receiving money from outside India to a bank account inside India. For example, the money you transfer or give families to satisfy financial commitments like loan payments or deposits. In general, NRIs send money to NRE, which enables them to efficiently handle their finances in India.

As we all know, remittances to India from other countries are probably the highest in the world. This is because Indians are more likely to choose other countries to make more money. Hence the fact that a large number of expatriates from all over the world are also from India. Studies show that the amount of money that came to India in this way in recent times was $ 78.6 billion. Due to these high statistics, the RBI has imposed strong legal restrictions in this area.

RBI Offers Two Routes For Inward Remittance

RBI has set up two different routes for Inward Remittance, namely Rupee Drawing Arrangement (RDA) and Money Transfer Service Scheme (MTSS). Both these payment methods have to be done either through banks in India or through authorized dealers.

These methods are mainly used by NRIs to transfer money to India. But both routes have their own peculiarities depending on what type of transfer it is used for. You can send funds to an Indian bank account as per the procedure covered by RDA. In addition, RDA is mostly preferred mainly for personal needs. For example, settling family expenses and paying bills. There is no set limit on the amount of money that can be transferred to individuals for such personal transactions. But, on the other hand, if you are using these transactions for business-related transactions, the limit is up to Rs 15 lakh.

However, when it comes to MTTS, the fact is that the limit is set at $ 2,500 per transaction. Here, a single recipient can make a maximum of thirty transactions in a financial year.

Furthermore, the Foreign Inward Remittance Certificate (FIRC), a certificate issued by the banking institutions that act as proof for the transfer of funds, is also required. It stands as a certificate of proof of transfer of funds to India. Also, this certificate confirms that the money has come from a legitimate source and that the payment is in accordance with the appropriate rules and regulations.

Remittance Rules for NRIs

In order to be able to receive funds from India, it is vital that Indians working outside of India comprehend FEMA guidelines for NRIs very carefully.

It has already been explained earlier in this article that FEMA contains various international money transfer rules for Indian citizens and expatriate Indians. We then discussed the guidelines that Indian residents should follow to send money. Now, let’s explore the rules NRIs have to follow. According to FEMA, the rules of international transactions of an expatriate Indian are based on the type of their bank account. They are the following.

⇒ Non-Resident Ordinary (NRO)

It is a Non-Resident Ordinary rupee account that can hold two or more NRIs together and it is appropriate for non-residents with income in India. This account can be used only for inward remittances from outside. NRO accounts have more liberal regulations; and, you can send a maximum of $1 million out of India within one year.

⇒ Non-Resident External (NRE)

An NRE is a non-resident rupee account that generates profits from an outside country to India as deposits. It allows money transfers from foreign countries and also returns the full amount to the country where the NRI currently resides.

⇒ Foreign Currency Non-Resident Bank Account (FCNR B)

FCNR is an account of foreign currency for NRIs to deposit any foreign currency. It can be a permanent or a one-to-five-year foreign currency deposit. This kind of account does not have any tax implications and money is fully repatriable.

Wire Transfer Remittance

Wire transfer has become the safest and fastest system for international transactions. Hence it is widely said that it is popular. The uniqueness of this facility is that it is available both online and offline. Details such as the name of the Bank of Correspondence, the currency of the transfer, the recipient's bank account number, the purpose of the remittance, and finally the Swift code will be required for the availability of this facility.

A security system called the Society for Worldwide Interbank Financial Telecommunication (SWIFT) has been deployed to ensure the complete success of the security criteria as it is a matter of money. This facilitated the secure exchange of messages between banks regarding international financial transactions.

Final Words:

We know the fact that foreign exchange plays a major role in the stability of an economy. Especially in recent times, there has been an increasing trend in cross-border money transactions. When reading these facts together, we can realize that international money transactions play an integral part in providing significant changes in the economy. But the fact is that when making an international payment we often do not think about its legal aspects. Does that seem fair? What do you think?