International Money Transfer Policy: India

Feb 15 2022

According to 2018 data, India is the top remittance recipient ($78.6 billion) in the world, representing nearly 11.5% of international money transfers received by all nations on the globe. In the same year, India sent $6.78 billion international money transfers to abroad countries.

Furthermore, the digital remittance market has been steadily growing in India, increasing from 2017's $614 million to $1.377 billion by 2020. With a compound annual growth rate (CAGR) of 18.2%, analysts expect the Asian nation's market to expand to nearly $2.7 billion by 2024.

India International Money Transfer Regulations

With so much money flowing in the country, it made sense for the Indian government to heavily regulate remittances.

In the Asian nation, the Reserve Bank of India (RBI) is responsible for ensuring that businesses and individuals meet the appropriate rules and laws concerning international money transfers.

When you transfer funds in or out of India, you have to follow the guidelines of the Foreign Exchange Management Act (FEMA).

From a high-level perspective, the RBI's goal with the FEMA is to ensure that outward international money transfers don't originate from crime or other illegal activities as well as to control INR's flow out of the nation to maintain the local currency market's stability.

The FEMA's guidelines are very comprehensive for all activities the legislation covers with different rules concerning Indian citizens, non-resident Indians (NRIs), individuals, businesses, as well as whether you are transferring funds to or from the Asian nation.

Outward Remittance Rules in India (LRS)

The Liberalized Remittance Scheme or LRS regulates how Indian citizens can transfer money outside of the nation. Before the LRS was introduced, outward remittances were prohibited unless one had specific permission from the country's central bank.

The most important rules of the LRS regulates the maximum amount of funds Indian citizens can send outside of the nation's borders and for what purpose they are permitted to do so.

Since the LRS' inception, the RBI has periodically increased the maximum annual limits from the initial $25,000 to the current $250,000 per year.

The permitted reasons for outward remittances for Indian citizens fall into the following groups:

The costs of travel and tourism
Abroad medical treatment
Covering overseas education fees
Emigration
Helping family members who live abroad
International business trips
Abroad employment
Donations and gifts (for eligible recipients)

Outward remittances falling in categories other than listed above are either not allowed or subject to further rules and regulations.

For example, you can't transfer money abroad from India if it originates from one of the following sources:

Gambling or lottery
Dividends of certain businesses
Some non-resident INR bank account interest payments

International Money Transfers to India (RDA, MTSS)

The RBI applies different rules when you transfer money from abroad to India. Here, the central bank offers two routes for inward remittances:

The Rupee Drawing Arrangement (RDA): For personal transfers, there is no maximum limit on the amount of funds you can remit to India. However, this only concerns transactions between individuals as there are caps on inward business remittances.
The Money Transfer Service Scheme (MTSS): With MTSS transfers, you can remit a maximum of $2,500 to India in one transfer. The RBI also limits the number of transactions at 30 transfers to a single recipient in a year.

No matter which option you use, inward remittances are heavily regulated in India. This means that you can only transfer funds through regulated agents and the Foreign Inward Remittance Certificate (FIRC) has to be included in the process.

In short, the FIRC is a certificate for the proof of funds transfer to India, which ensures the money originates from legitimate sources, and the transaction complies with the appropriate laws and regulations.

Non-Resident Indian (NRI) Remittances

As mentioned earlier, the FEMA includes different international money transfer regulations for citizens and non-resident Indians (NRIs). Now that you know what guidelines Indian residents should follow for remittances, let's explore the rules NRIs have to meet.

As per the FEMA, rules applied on NRIs are based on the bank account type a non-resident Indian has, which is either:

Non-Resident External (NRE): For NRIs who generate earnings from an abroad nation and seek to remit them to India to hold as savings in INR, and then transfer the funds back to the country of residence.
Non-Resident Ordinary (NRO): An INR-denominated account suitable for non-residents who have earnings in India (e.g., rent, pension, dividends).
Foreign Currency Non-Resident Bank Account (FCNR B): Foreign exchange account for NRIs to deposit funds and limit currency conversion risks.

While there is no limit on NRE and FCNR deposits, India's central bank restricts the sources you can use to fund your bank account.

On the other hand, NRO accounts have more lax rules but come with a maximum limit of $1 million you can remit abroad from India in a year.

Bank Wire Limits and Fees in India

To initiate a bank transfer, Indian citizens can choose from three wire types:

National Electronic Fund Transfer (NEFT): NEFT refers to the standard and now free national bank transfers in India. While there are no limits for NEFT transactions (although banks may still apply some restrictions on individual transfers), financial institutions only process them on working days between 8AM and 7PM. NEFT transactions are available in India via both internet banking and in-person at a bank branch.
Real-Time Gross Settlement (RTGS): Allowing citizens to transfer funds without charge on working days between Monday and Saturday, RTGS transactions are meant for high-amount wires (the minimum is 200,000 INR or $2,730). Like the NEFT, RTGS transfers are available both online and offline.
Immediate Payment Service (IMPS): Unlike the previous types, citizens can transfer funds with IMPS on all days of a year with 24-hour coverage. Available only via internet banking, financial institutions charge fees for transactions above 1,000 INR ($13.6) while capping the maximum amount at 200,000 INR ($2,730). This service is only available via internet banking.

Fees and Limits for ATM Cash Withdrawals

The fees you pay and the limits you have for ATM cash withdrawals in India vary by the financial institution and bank account.

However, all financial institutions have to follow the RBI's guidelines, allowing bank account holders to have three free ATM withdrawals per month (recently decreased from five per month).

Also, India's central bank allows banks to charge a maximum of 20 INR ($0.27) for each domestic ATM withdrawal beyond the free limit.

The fees are higher for international cash withdrawals, which usually range between 125-150 INR ($1.7-2.05). For international withdrawals, ATM operators also charge a 3.5% currency conversion fee.

India Cryptocurrency Policy

In 2018, the RBI issued a ban on cryptocurrencies by prohibiting financial institutions and other entities regulated by India's central bank to provide digital asset-related services.

However, in March 2020, the nation's Supreme Court lifted the RBI's cryptocurrency ban, leaving the country without effective regulation of the digital asset industry.

Although cryptocurrency is legal in India, there is regulatory uncertainty surrounding cryptocurrencies in the Asian nation as the RBI is reportedly planning to impose a long-lasting ban on Bitcoin.

STICPAY for India

STICPAY, the London-based fintech company, considers India as one of its top markets for its award-winning e-wallet service.

It takes only a few minutes to register a local currency account in INR and experience the cost-efficient, convenient, and user-friendly solution STICPAY offers.

Furthermore, as cryptocurrency is legal in India, users can deposit, withdraw, and exchange multiple digital assets (Bitcoin, Ethereum, Litecoin, Tether) on STICPAY.

Sources:

https://www.statista.com/chart/20166/top-10-remittance-receiving-countries/

https://www.statista.com/outlook/332/119/digital-remittances/india#market-revenue

https://www.worldbank.org/en/topic/labormarkets/brief/migration-and-remittances

https://www.livemint.com/Money/caAJju0BbQ1eHtuM03AnON/Remittances-a-note-of-caution.html

https://www.ipg-online.org/news/item/105/

https://www.extravelmoney.com/blog/rbi-rules-on-outward-remittance-money-exchange/

https://www.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=10326

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10192&Mode=0

https://www.personalfinanceplan.in/nri-corner-remittance-facilities-for-nris/

https://www.personalfinanceplan.in/nri-corner-nre-nro-and-fcnrb-deposits/

https://www.icicibank.com/business-banking/faq/trade-service/foreign-inward-remittance-certificate.page