Sending money abroad has become an essential part of many Indians’ lives, whether for education, business, family support, or investment purposes. A wire transfer is one of the most secure and easiest ways to send money overseas. But it’s important to know the rules and regulations governing these transactions in India to avoid delays, penalties, or legal issues.
In this blog, we will cover the essential rules every Indian should know about sending money internationally, including RBI guidelines, taxation, documentation, limits, and more.
1. What is International Money Transfer?
An electronic wire transfer allows you to send money from one bank account to another, either domestically or internationally. It’s processed through financial institutions and requires basic details like the recipient’s bank name, account number, and SWIFT/BIC code.
Sending money abroad is used for:
- Tuition fee for students studying abroad
- Sending money to family members
- Business transactions
- Investments in foreign assets
- Medical expenses
Though it seems simple, several regulations are in place to ensure compliance with financial laws and prevent fraud or illegal transactions.
2. RBI Guidelines for International Transactions
The Reserve Bank of India (RBI) regulates all foreign exchange transactions under the Foreign Exchange Management Act (FEMA). Any outward remittance must comply with FEMA guidelines to ensure transparency and legal compliance.
RBI guidelines include:
- Liberalized Remittance Scheme (LRS): Indian residents can remit up to $250,000 per financial year for permitted transactions like education, travel, gifts, and investments.
- Purpose Declaration: The sender must specify the purpose of the remittance and ensure it falls under the allowed categories.
- Bank Approval: For amounts exceeding the LRS limit or certain business transactions, prior approval from RBI may be required.
- Restricted Transactions: Remittances for prohibited activities like betting, lottery, and certain investments in foreign companies are not allowed.
3. Documentation Required for International Money Transfer
To initiate a wire transfer abroad, the following documents are required:
- PAN Card: Mandatory for tax compliance.
- Valid ID Proof: Passport, Aadhaar, or voter ID.
- Bank Account Details: Sender’s and recipient’s account details including SWIFT/BIC code.
- Purpose Code: A pre-defined code specifying the purpose of transfer (e.g. education, medical, family maintenance).
- Form A2: Required for amounts more than a certain limit, declaring purpose and compliance with FEMA rules.
Ensure all documents are accurate and complete to avoid processing delays and compliance issues.
4. Charges and Fees for International Money Transfer
Banks and financial institutions charge for these transactions. The total cost includes:
- Transfer Fee: Varies by bank, typically INR 500 to INR 2,500 per transaction.
- Exchange Rate Margin: Banks may apply a markup on the exchange rate, which affects the amount received by the beneficiary.
- Intermediary Bank Fees: Additional charges by correspondent banks involved in the transaction.
- GST: Applicable on service charges by banks.
Comparing fees across different banks and forex service providers can help save money when sending funds internationally.
5. Taxes on International Remittances
Taxes on international remittances depend on the amount and purpose of the transaction:
- Tax Collected at Source (TCS): For LRS remittances, TCS is applicable at different rates:
- 5% for amounts above INR 7 lakh in a financial year (except for education and medical expenses)
- 0.5% for education-related transfers financed by loans
- GST: Banks charge GST on service charges for the transfer.
- Income Tax Reporting: Large remittances are subject to scrutiny, and non-reporting can lead to penalties.
Understanding taxes can help in planning and avoiding surprises.
6. How to Make it Smooth
To make your international money transfer smooth:
- Check beneficiary details: Incorrect account numbers or SWIFT codes can cause transaction failures or delays.
- Choose the best service: Compare banks, online forex platforms, and international payment providers for better exchange rates and lower fees.
- Know the processing time: Transfers take 1 to 5 business days depending on the destination and intermediary banks.
- Save transaction records: Keep receipts and reference numbers for future reference or dispute resolution.
7. Alternative to Bank Transfers
While banks are the traditional choice for international fund transfers, alternative financial services are a better option when it comes to fund transfers to foreign territories. Here is why:
- Online Money Transfer Platforms: Services like Wise (formerly TransferWise), PayPal, and Western Union offer cross-border transfers with minimal fees.
- Forex Companies: Some forex service providers like Unipay offer better exchange rates and lower service charges than banks.
- Cryptocurrency Transfers: Though still evolving, some individuals use digital currencies like Bitcoin for international transactions.
Choose the right one based on speed, cost, and convenience.
8. Common Mistakes to Avoid
- Misinformation: Incorrect details of the recipient can lead to unnecessary delays or loss of funds altogether.
- Failure To Monitor The Exchange Rates: Fund transfers to a foreign country are always subject to changes in the exchange rate.
- Overlooking the Provider’s Fee: Some providers impose a limit on the amount a beneficiary can receive.
- Disregarding the RBI Rules: Any transfer that does not comply with the rules set by the Foreign Exchange Management Act can be blocked or even face a penalty.
- Omitting the Tax Issues: Neglecting the TCS and GST introduces more expenses than necessary. Make sure to avoid these mistakes for a hassle-free transfer.
Conclusion
Sending money abroad is a way to support loved ones, pay for education, or manage international business expenses. By following RBI rules, preparing the required documents, and choosing the right service provider, Indians can ensure secure and hassle-free transfers.
Looking for a reliable forex service provider? Unipay Forex offers better exchange rates and easy international money transfer services. Whether you are sending money for education, medical treatment, or business purposes, they ensure your funds reach the destination safely and at the best rates.
Make informed decisions, avoid common mistakes, and transfer money internationally with ease.
Photo by Alexander Grey on Unsplash (Free for commercial use)
Image published on February 12, 2018
