There are so many reasons why you might need to send money overseas. Maybe you have a home or family abroad, need to pay for an upcoming holiday or are...
Every country has its own rules about how financial markets and foreign exchange is controlled. In India, this is the job of the central bank, the RBI. There are various pieces of legislation which govern outward and inward remittances to India - most of which fall under the Foreign Exchange Management Act (FEMA).
If you’re a non-resident Indian citizen (NRI) and want to send money to a family member in India, or if you live in India and need to get foreign currency for a trip, or want to transfer money abroad, the chances are that the FEMA guidelines will apply in some way or another.
If you’re moving money in or out of India, it’s worth getting to know how the FEMA guidelines could affect whatever transaction you’re planning on carrying out. Here’s our guide to help get you started.
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Now, back to what you came here to read.
FEMA - The Foreign Exchange Management Act, is the legislation covering the flow of money in and out of India. 1
It’s enforced by the RBI - the Reserve Bank of India. The RBI is India’s central bank, responsible for issuing currency, managing foreign exchange, and regulating India’s entire financial system.
The purpose of FEMA is two-fold. The rules are in place firstly to make sure that money being sent out of the country doesn’t come from crime, or end up being used for illegal purposes, such as funding terrorism. Secondly, the legislation helps the RBI keep local currency markets stable, by ensuring there’s not a sudden - or excessive - flow of rupees out of India, which could have a negative effect on the Indian economy.1
FEMA covers all forms of foreign exchange transactions and remittance payments. That means that there are guidelines and rules which apply if you’re an individual wanting to move money in or out of India, if you’re a business owner or entrepreneur, or if you’re in India but exchanging foreign currency for travel purposes.1
This article will focus on the rules applying to individuals looking to remit money in and out of India - including the Liberalised Remittance Scheme (LRS) which covers moving money out of India from resident Indian citizens’ bank accounts. However, the full legislation and guidelines, including those for businesses can be found on the RBI website.
All activities and transactions which are covered under FEMA are pretty heavily regulated. That means that there’s a process - and corresponding paperwork for more or less anything you need to do which might involve moving money in and out of India.
Luckily, the RBI has put all the forms you might need on the forms page of their website.
The part of FEMA which covers outward remittances for Indian citizens is called the Liberalised Remittance Scheme, usually shortened to LRS. It’s interesting to know that the scheme is called ‘liberalised’ because, until its introduction, it was impossible to remit money out of India without specific permissions from the RBI. Since being launched, the rules have been gradually altered to allow Indian citizens to transfer a higher amount of money abroad without special permissions.2
Under the LRS, Indian citizens can transfer money to bank accounts abroad without needing to get special permission. However, money can only be intended for a set number of purposes, and remittances are allowed only up to a maximum annual limit which is currently set at USD 250,000.2
There are some organisations and countries that you’re not allowed to transfer money to. These are typically either countries considered ‘non-cooperative’ by the Indian authorities, or organisations which may have links to terrorism.2
In broad terms, the LRS allows Indian citizens to transfer money abroad for the following purposes:2
- To cover the costs of overseas education and living expenses for students living abroad
- Travel and tourism costs, as well as business travel expenses
- Medical treatment abroad
- Purchase of shares or property overseas
- Supporting family members living abroad
- Gifts and donations - it’s worth noting that some organisations don’t qualify under LRS rules
To remit over USD 250,000 in one year you’ll need special permission from the RBI, and you can’t remit money which originates from certain sources including:4
- Lottery winnings or proceeds from gambling
- Some company dividends
- Interest payments on some non-resident rupee bank accounts
- Some specific types of income
There are different rules applied to non-resident Indians (NRIs), who might have an account in India but mainly reside elsewhere - we’ll cover them later.
The RBI rules for inward remittances are a little different to those for outward remittance. Indeed, India is one of the countries which receives the most money in the form of remittances. This is in some part due to the large number of NRIs living and working overseas, and sending money back to help out family back in India, and also NRIs who have chosen to invest in businesses or property in India.5
The RBI offers 2 different routes to send money back to India from overseas, known as the Rupee Drawing Arrangement (RDA) and the Money Transfer Service Scheme (MTSS).5
Under the RDA route, there’s no cap to the amount of money that can be transferred for personal transactions - although there is a limit applied to business transfers.5
MTSS remittances are capped at USD2,500 per transfer, and a maximum of 30 transfers a year to a single recipient. Both RDA and MTSS payments must be made via authorised agents in India, and the process is tightly regulated.5
Part of the regulatory process is something called a Foreign Inward Remittance Certificate (FIRC). This is basically a receipt issued by banks as proof of a transfer of funds from overseas to India.6 It’s used as proof that the money you receive is from legitimate sources, and shows that all the proper checks have been carried out, and the remittance is legally sound. Find out all you need to know about the requirements for the process of getting a FIRC.
You can find all the details, as well as a handy FAQ, on the RBI website.
If you’re researching international transactions in India, you might come across the acronym FERA, as well as FEMA. It can help to know that FERA is the old Foreign Exchange Regulation Act, of 1973, whereas FEMA is the more recent regulation.
Under FERA, it was not possible to remit money out of India at all without RBI approval - as such, the FEMA legislation was broadly welcomed as a step towards liberalisation.7
There are a few more situations you should know about in which the RBI regulations could apply. It’s a good idea to do some research if you’re planning any sort of forex transaction or international money transfer, to make sure you have everything you need and that the process goes smoothly. Here are a few more scenarios to consider.
As part of FEMA there are some restrictions on foreign exchange in India, as well as bringing Indian and foreign money in and out of the country.
The guidelines are detailed and quite wide-ranging - although restrictions will mainly only matter to you if you want to exchange large amounts of rupees to foreign currency. In most cases, if you’re simply exchanging some money for a trip overseas, you should be fine. The full guidelines are in the FAQ linked below from the RBI - but some highlights include.8
- In most cases, travellers can purchase foreign currency up to a value of USD3,000 before leaving India
- Travellers entering India may carry up to Rs25,000 without needing to declare it
- If you’re entering India with over USD5,000 worth of foreign currency you must declare it to customs officials
- You can only hold up to USD2,000 in foreign currency after returning to India from abroad. Any cash held in excess of that must be exchanged back to rupees within 180 days of re-entering India.
There are rules around foreign currency exchange and outward remittances which apply to non-resident Indians too.
Whether or not there’s a limit to what you can remit out of India depends on the account type you have. NRIs can hold a bank account in India which must fall into one of the following categories:9
- NRE (Non-resident External)
- NRO (Non- Resident Ordinary)
- FCNR (B) (Foreign Currency Non-Resident Bank Account)
There’s no limit to the amount you can remit from an NRE or FCNR(B) account - but there are restrictions in place on how you can set them up, and what you can pay into these accounts in the first place. 9
If you hold an NRO account, you can remit up to 1 million USD a year out of India, but the tax on an NRO account is likely to be different - and probably higher - than that on the other account types.9
As the rules are relatively complex, and subject to change over time it’s well worth taking professional advice if you need to remit a large amount of money out of India.
If you want to know more about the processes and rules in place regarding remittances, then there are plenty of great resources out there to help you. Here are a few of our favourites to get you started. Happy reading.
- Overview of the World Remittance Industry
- Foreign Remittance (and US tax implications)
- Inward Remittance
- Outward Remittance
- Remittance Address
- Remittance Advice
- FIRC (Foreign Inward Remittance Certificates)
- LRS (Liberalised Remittance Scheme)
- How to make an outward remittance from India
The financial services industry and foreign exchange, in general, is tightly controlled in India by the RBI, in order to protect both customers and the economy as a whole.
The FEMA legislation covers most movements of money in and out of the country. That means that whether you’re an Indian citizen looking to remit money overseas to pay for a family member’s education abroad - or an NRI looking to send money home to your family in India, you need to understand the law and how it applies to you. A little research goes a long way. Use these resources to learn more about outward and inward remittances to India, and make your international transactions all go smoothly.
- https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=10326 (May 22, 2018)
- https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10192&Mode=0 (May 22, 2018)
- https://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx (May 22, 2018)
- https://indusforex.indusind.com/what-is-liberalised-remittance-scheme-or-lrs (May 22, 2018)
- https://rbi.org.in/scripts/FAQView.aspx?Id=112 (May 22, 2018)
- https://www.icicibank.com/business-banking/faq/trade-service/foreign-inward-remittance-certificate.page (May 23, 2018)
- https://keydifferences.com/difference-between-fera-and-fema.html (May 22, 2018)
- https://rbi.org.in/scripts/FAQView.aspx?Id=66 (May 22, 2018)
- https://www.personalfinanceplan.in/nri-corner/nri-corner-remittance-facilities-for-nris/ (May 22, 2018)
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| This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. |
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from Wise Payments Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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