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Journalism of Courage
— George Zachariah
When it comes to higher education abroad, one of the biggest challenges is the payment of tuition fees to the university in the foreign country. This involves the global money transfer or the international remittance network, which is a burgeoning grid of money transfers between countries around the world.
In 2022, it has been estimated that nearly $630 billion was transferred across it. One of the biggest contributors to its volume is students who pay their university fees abroad, and parents of students who send money abroad for their ward’s maintenance expenses.
Understanding the International Remittance Network
The largest and most popular protocol that governs the flow of money across borders is the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network. It is a messaging protocol comprising 11000+ banks and financial institutions in more than 200 countries. On average, every day 42 million messages containing remittance instructions are sent over the network.
Each bank in the SWIFT network is assigned an 8 or 11-character unique code called BIC (Bank Identifier Code). The code identifies the bank, the city and the country where it is located. This code, along with the account number of the beneficiary, is used to route the remittance message generated in the SWIFT, and this is how money transfer takes place over the network.
How does it work with respect to students?
Before heading abroad, every student in India must first research and choose the best service provider (bank/money transfer company) for doing international remittances. The best option is selected on the basis of the exchange rate, service fees and customer ratings.
The service provider will verify the student’s KYC documents which will include a government-issued ID card, PAN card, A2 form containing University’s bank account details and University’s offer letter mentioning the amount to be transferred. This is to ensure that the transaction is being done for a genuine purpose. Once the details are verified, the student can transfer the remittance amount to the service provider’s account.
The service provider books the “International Remittance” under the SWIFT network at the mentioned exchange rate. A message is generated mentioning the student’s name and purpose of remittance. The university’s bank account details are also included in it. This electronic message specifies that the university account in the mentioned country must be credited with the amount mentioned in the SWIFT message.
Sometimes, an intermediary bank may be required to route the funds from the sending bank in India to the beneficiary bank abroad. It may charge a fee for routing the funds called the ‘intermediary bank fee’. This can be prepaid to the Indian bank sending the funds. Otherwise, the intermediary bank will charge the fee from the funds passing through it.
Once the routing happens, it reaches the university’s bank, they credit the funds into the university’s account. Thus the “International Remittance” is complete.
Ideally, it is always good to keep an eye out for the rates in the market and the rates offered by different channels. A good strategy for the remittance of money abroad would be to book from an online vendor as it can lead to savings of 5-7 per cent over traditional banks. Students can tap into the best exchange rates in the online marketplace and can reduce their transaction costs.
Key things for students to remember
— When transferring money abroad, the student must make sure to enter the correct beneficiary details such as beneficiary name, address, branch, bank and account number in the A2 form. If there is any mismatch in the details entered, with respect to the details mentioned in the KYC documents, the transaction may be rejected.
If the rejection happens after the money has been sent abroad, i.e. from the intermediary/beneficiary bank’s end, the student could end up losing money. When the rejected amount comes back to the bank/money transfer company, it’ll be at their “buy rate”, which is quite less than the exchange rate at which the bank/money transfer company sold the service, which would have been at their “sell rate”.
For ex: Today’s Kotak bank “sell rate” for money transfer to US is Rs 84.26 / USD and their rate for receiving money from abroad to India, i.e., their “buy rate” is Rs 80.38.
Also, when a money transfer rejection happens, it may take some time for the funds to be credited back to the student’s account further delaying the process.
— Another factor to consider is the intermediary bank fees. When transferring money from India to another country, the funds may be routed via an intermediary bank. This happens because the sending bank and the receiving bank abroad may not have a direct relationship. In such instances, the intermediary bank may charge a fee for routing the transfer. Usually, the students in India add this charge (USD 15-30) on top of the amount to be sent to the university, so that the intermediary bank charge deduction does not happen from the funds meant for the university. If this amount has not been considered and added and the deduction happens from the university funds, it may get rejected as the university will send the whole amount back, on account of not receiving the correct amount mentioned by them.
— Transactions above Rs 7 Lakh (in a financial year) will attract provisions of TCS.
| Purpose of remittance | TCS | ||
| Below Rs 7 lakh (of LRS Limit) | Above Rs 7 lakh (of LRS Limit) | Specified Person (Above Rs 7 lakh of LRS Limit) | |
|
0% | o.5% (if the amount remitted is through education/student loan)
else 5% |
5% (if the amount is remitted through education/student loan)
else 10% |
Documents needed for a student to transfer money to a university abroad;
— Valid Photo ID and address proof of sender (Passport / Driving Licence / Voters ID)
— PAN card of sender
— Passport copy of student
— Purpose proof (university letter/ prospectus)
— A2 form containing beneficiary details such as name, account number, bank etc.
(The writer is the CEO of ExTravelMoney.com)
