4 min readMumbaiAug 21, 2024 07:36 AM IST
First published on: Aug 21, 2024 at 04:00 AM IST
Written by Agneya Veer Dhingra
Outward foreign exchange remittances by resident Indians fell by 43.93 per cent to $2.181 billion during the month of June 2024 as against $3.890 billion in June last year, data released by the Reserve Bank of India (RBI) shows.
Further, outflows under the Liberalised Remittances Scheme (LRS) of the RBI declined by 24.47 per cent to $6.88 billion during the first quarter ended June 2024 from $9.11 billion in the same quarter of the previous year, according to RBI data.
Under LRS, all resident individuals, including minors, can remit up to $250,000 (approximately Rs 2.09 crore) abroad per year without prior approval from the RBI. LRS limit, which was $75,000 in 2014, was hiked to the present level over the years.
Travel has emerged as the primary source of remittance outflow from India, accounting for over 50 per cent of total outflows from just 1.5 per cent share in FY14. In June 2024, remittances for travel purposes were $1.275 billion, down from $1.482 billion in June 2023. LRS remittances under the gift category were down at $228.81 million in June this year from $ 643.95 million in June a year ago, investments in equity and debt fell to $120.22 million from $314.73 million and maintenance of close relatives at $270.72 million as against $890.89 million, according to RBI data.
One of the main reasons for this decline has been the implementation of the Tax Collection at Source (TCS) on LRS transactions. The Union Government introduced TCS on remittances under the scheme for all purposes except education and medical treatment. This has disincentivised remittances as reflected in the June data.
Additionally, global and domestic economic uncertainties, including fluctuating exchange rates and inflation, have led individuals to be more cautious with their international spending. This has contributed to the moderation in remittances as people delayed or reduced their non-essential transfers. TCS is not an additional tax liability as people can claim a refund while filing income tax returns.
Meanwhile, over the last 10 years, there has been a significant change in the nature of outward remittances. “Purpose wise, ‘gifts’ had the highest share in India’s outward remittance in FY14, followed by ‘others’. Maintenance of close relatives and investment in equity/debt were the other major heads. On the other hand, their share has declined significantly in subsequent years,” says a Bank of Baroda report.
Outward remittances under LRS were higher at $31.73 billion FY24 as against $27.14 billion in FY23.
There has been an increase in foreign travel in the wake of an increase in disposable income and growth of aspirational middle class in the country. This trend gained further traction after travel restrictions due to the Covid-19 pandemic were lifted. The share of maintenance of close relative has remained around 15 per cent over the last 10 years. However, there has been a sharp decline in the share of gifts and education in this period.
The rise of an aspiring middle-class has ensured that discretionary spending of households has gone up, which is reflected in high travel remittances to foreign countries.
TCS is not an additional tax liability as people can claim a refund while filing income tax returns. As per the TCS rates under LRS brought in the 2023-24 Budget, overseas tour packages attract TCS of 20 per cent. However, TCS is not levied on credit card spending abroad. On International spends through credit cards, HDFC Bank said in a communication to account holders, “the classification of use of international credit card while being overseas, as LRS is postponed. Therefore, no TCS shall be applicable on expenditure through international credit card while being overseas till further order.”
However, for education where the source of fund is a loan, there is be no TCS for less than Rs 7 lakh per individual per annum; for amounts equal to or more than Rs 7 lakh, the applicable TCS is the same at 0.5 per cent. For education purposes where the source is self-funding, for amounts less than Rs 7 lakh no TCS is be levied, but for amounts of Rs 7 lakh and above, TCS rate continues to be 5 per cent.
Travel has emerged as the primary source of remittance outflow from India, accounting for over 50 per cent of total outflows from just 1.5 per cent share in FY14. (File Photo) 
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