Outward remittances slide to lowest in nearly two years

Outward remittances from India in November for purposes including foreign travel and children’s education slipped to $1.88 billion, the lowest in close to two years, Reserve Bank of India (RBI) data showed.

Remittances sent abroad have been on a downward trajectory since October after a hike in tax collected at source (TCS) came into effect. Foreign remittances under the liberalized remittance scheme (LRS) slipped from $3.49 billion in September to $2.18 billion in October, data in RBI’s latest monthly bulletin showed.

The LRS was introduced by RBI to allow individuals, including minors, to freely remit up to $250,000 abroad every financial year for purposes such as travel, education, and investments without seeking its approval.

The government, in this year’s annual budget in February, raised TCS on all foreign remittances via LRS to 20% from 5%, except for education and medical treatment. The rates were to come into effect from 1 July, but were later pushed to 1 October.

The finance ministry had in June said that individuals sending up to ₹7 lakh ($8,534) abroad per year won’t have to pay TCS. This applies to all types of payments under the LRS, regardless of the purpose. So, no TCS will be charged for remittances up to ₹7 lakh each year.

However, for remittances above the threshold, the ministry will charge different TCS rates based on the type of transaction. For overseas tour packages, the TCS will be 5% for amounts up to ₹7 lakh and 20% for amounts above this limit. Previously, a 5% TCS was charged on tour packages without any limit.

In November, RBI data showed, a significant chunk of the funds remitted abroad were for travel purposes, at $1.18 billion, down from $1.37 billion in the previous month and $1.03 billion a year ago.

Travel was followed by remittances for education purposes and maintenance of relatives.

Funds sent abroad for studies had declined from $396.08 million in September to $269.19 in October, and further to $207.55 million in November, which is marginally lower than the amount sent abroad in November last year at $211.65 million.

During October-to-December, Canada had slashed the study permits issued to Indian students by a steep 86% from 108,940 in the year-ago quarter to just 14,910, amid a diplomatic row that resulted in tit-for-tat expulsion of diplomats.

Indians make up the largest demographic of international students in Canada who contribute an estimated Canadian $22 billion ($16.4 billion) annually to that economy.

Outward remittances for maintenance of relatives had more than halved to $206.16 million in October from $559.79 million in September before rising marginally to $206.63 million in November.

In November, investments in foreign stocks and bonds fell sharply, decreasing by half from the previous month to $41.30 million.