Remittances under the liberalised remittance scheme (LRS) returned to pre-Covid levels in September, reversing the trend of previous months, during which outward remittances by resident Indians were severely impacted by lockdowns in countries around the world. Outward remittances by resident Indians hit a seven-month high of $1.65 billion in September – and was more than the figures for both September 2019 ($1.59 billion) and March 2020 ($1.36 billion), when the pandemic began to worsen, data from the Reserve Bank of India show. Remittances in February 2020 were, however, higher at $1.68 billion.
Money sent on account of maintenance of relatives, as gifts, and to pay for education witnessed a sharp recovery in September. Remittances for the purposes of maintaining relatives and gifting in September 2020 were more than in February 2020 and September 2019. Remittances for purposes of education were 10 per cent less than the figure of September 2019.
Coinciding with India slowdown
The sharp increase in outflows over the last several years – $63.7 billion between April 2014 and September 2020 – has come at a time when India has witnessed a weak investment and business climate.
With restrictions still in place in many countries, travel, which accounted for 37 per cent of total remittances in 2019-20, is yet to recover – in September 2020, it was only $358 million, or 21.7 per cent of the total. As lockdowns shut most of the world – including India’s own nationwide lockdown that began on March 24 – and international travel stopped almost entirely, outward remittances fell dramatically to just $499 million in April. By August, however, it had recovered to $1.15 billion.
Over the last six years, remittances by resident Indians has shot up from $1.1 billion FY’14 to $18.76 billion in FY’20, driven primarily by spending on travel, education, maintenance of relatives, and gifting. In FY’20, these four heads accounted for outward remittances of $17.3 billion, or 92 per cent of the total.
Between April 2014 and September 2020, resident Indians have remitted $63.7 billion abroad under the RBI’s LRS. Under the scheme, resident individuals can remit up to $ 250,000 in a financial year under various heads including current account transactions such as going overseas on employment, studies overseas, emigration, maintenance of close relatives, medical treatment, etc.
Resident Indians can also transfer money for capital account transactions under LRS, including opening foreign currency accounts overseas with a bank, purchase of property, and making investments in units of mutual funds and venture capital funds, etc.
In her Budget this year, Finance Minister Nirmala Sitharaman proposed to impose a 5 per cent tax-collected-at source on foreign remittances with effect from October 1, 2020. The tax is for foreign tour packages; other remittances above Rs 7 lakh, education-related remittances funded by loans, will be taxed at 0.5 per cent for amounts above 7 lakh.x
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