Travel has emerged as the primary source of remittance outflow from India, accounting for 53.6 per cent of total outflows in FY24 from just 1.5 per cent share in 2013-14 and 35 per cent in 2018-19.

With an increase in disposable income and growth of the aspirational middle class in the country, there has been an increase in foreign travel. This trend gained further traction after travel restrictions due to the Covid-19 pandemic were lifted. “The share of maintenance of close relatives has remained around 15 per cent over the last 10 years. However, there has been a sharp decline in the share of gifts and education in this period,” a report by Bank of Baroda said.

Resident Indians are also investing more abroad. In 2023-24, they invested on an average $100 million abroad every month ($1.51 billion for the full year) in foreign equity and debt as against $1.25 billion in the full year 2022-23, RBI data shows. Remittances for ‘maintenance of close relatives abroad’ were $4.61 billion and ‘studies abroad’ were $3.47 billion in 2023-24.

Overall, total outward remittances under LRS were $31.73 billion in 2023-24 as against $ 27.14 billion in the previous year, a rise of 16.91 per cent. Five years ago in 2018-19, the total outward remittances under LRS was $13.73 billion.

Under LRS, all resident individuals, including minors, can remit up to US $250,000 (approximately Rs 2.08 crore) abroad a year without prior approval from the RBI.

“Over the last 10 years, there has been a significant change in the nature of outward remittances. Purpose wise, ‘gifts’ had the highest share in India’s outward remittance in FY14, followed by ‘others’. Maintenance of close relatives and investment in equity/debt were the other major heads. On the other hand, their share has declined significantly in subsequent years,” says a Bank of Baroda report.

Latest data also shows that tax collection at source (TCS) rates on payments under the LRS from October 1 had limited impact on remittances. However, TCS is not an additional tax liability as people can claim a refund while filing income tax returns.

As per the TCS rates under LRS proposed in the 2023-24 Budget, overseas tour packages will attract TCS of 20 per cent from October 1, compared with 5 per cent. However, TCS will not be levied on credit card spending abroad. On International spends through credit cards, HDFC Bank said in a communication to account holders, “the classification of use of international credit cards while being overseas, as LRS is postponed. Therefore, no TCS shall be applicable on expenditure through international credit card while being overseas till further order.”

However, for education where the source of fund is a loan, there will be no TCS for less than Rs 7 lakh per individual per annum; for amounts equal to or more than Rs 7 lakh, the applicable TCS will be the same at 0.5 per cent. For education purposes where the source is self-funding, for amounts less than Rs 7 lakh no TCS will be levied, but for amounts of Rs 7 lakh and above, TCS rate will continue to be 5 per cent.