Remittance Meaning: Types, TCS Rules, LRS Limit

What is Remittance?

Remittance refers to the transfer of money by a person in one location to a recipient in another location typically across national borders. The word originates from 'remit', meaning to send or pay. In practice, remittances most commonly refer to:

• Inward Remittance:** Money sent TO India by NRIs or foreign entities.
• Outward Remittance:** Money sent FROM India to another country by Indian residents.

Remittances are a critical lifeline for millions of Indian families. The money is primarily used for household expenses, education, healthcare, debt repayment, and investment in real estate or businesses.

Types of Remittance in India

Inward Remittance (Money Coming into India)

Inward remittance refers to foreign funds received in India from abroad primarily from the Indian diaspora working in countries like the USA, UAE, UK, Canada, and Saudi Arabia. Inward remittances are regulated by FEMA (Foreign Exchange Management Act, 1999) and the RBI's Foreign Exchange Management (Deposit) Regulations.

Outward Remittance (Money Going Abroad)

Outward remittance is when an Indian resident sends money outside India. This is governed by RBI's Liberalised Remittance Scheme (LRS)

Liberalised Remittance Scheme (LRS): RBI's Annual Limit

The Liberalised Remittance Scheme (LRS), introduced by RBI in 2004 and updated periodically, allows Indian resident individuals (including minors) to freely remit up to USD 250,000 (approximately ₹2 crore) per financial year for permitted capital and current account transactions.

However, from Budget 2023, TCS (Tax Collected at Source) is now applied on LRS remittances above ₹7 lakh in a financial year making this the practical threshold most individuals track. Permitted LRS purposes include:

• Travel abroad (tourism, business, medical)
• Education and medical treatment abroad
• Maintenance of close relatives outside India
• Gift or donation to foreign entities
• Investment in foreign securities or real estate
• Loading forex prepaid cards for travel
   

Purpose Codes for Inward Remittance (RBI Mandatory)

When receiving inward remittances, banks are required by RBI to collect a purpose code a standardised code that classifies the nature of the inward remittance. Common purpose codes include:

• P0101:** Advance receipt against export of goods
• P1301:** Family maintenance (most common for NRI remittances)
• P1306:** Education-related remittances
• P0011:** Software services exports
• P0012:** Business and management consultancy

Your bank will ask for the purpose code when receiving large inward remittances. Providing the correct purpose code ensures smooth processing and RBI compliance.

How to Send Remittance via Bank

Bank provides outward remittance services for LRS-permitted purposes. To initiate an outward remittance:

• Visit your nearest Bank branch (online outward remittance for individual customers may require branch visit for first-time SWIFT setup).
• Fill in the outward remittance application form with beneficiary details, SWIFT/IBAN, purpose, and amount.
• Submit PAN card, address proof, and purpose declaration (A2 form for FEMA compliance).
• Authorize TCS deduction (if applicable based on your cumulative LRS for the year).
• Funds are typically transferred via SWIFT within 1–3 business days.

Frequently Asked Questions (FAQs)

Can I receive remittance in my bank savings account?

Yes. You can receive inward remittances in your bank savings account. Large inward remittances may require you to declare the purpose to your bank for FEMA compliance. NRIs should use NRE or NRO accounts for receiving foreign remittances.

Is remittance income taxable in India?

Inward remittances from NRI family members for maintenance purposes are generally not taxable in India (they are treated as gifts from relatives, exempt under Section 56(2)(x) of the Income Tax Act). However, if the remittance is for business income or investment returns, it may be taxable. Consult a tax advisor for your specific situation.

What are purpose codes for remittance?

Purpose codes are standardized RBI codes that classify the nature of international remittances. Banks are required to collect these codes for both inward and outward remittances. For example, P1301 is for family maintenance remittances from NRIs. Correct purpose codes ensure FEMA compliance.

What happens if TCS is deducted but I am in a lower tax bracket?

If TCS is more than your actual tax liability, you can claim a refund of the excess TCS when filing your ITR. The deducted TCS appears in your Form 26AS and is adjustable against your total tax payable for the year.