Under LRS, all resident individuals, including minors, can remit up to USD 250,000 abroad a year without prior approval from the RBI
Indians spent a record USD 31.7 billion on foreign exchange under the Liberalised Remittance Scheme (LRS) in FY24, latest data by the Reserve Bank of India shows.
According to a report by RBI, Indians are spending a lot more in foreign exchange, especially on overseas travel. The forex spending of USD 31.7 billion marks nearly 17 pc increase over the previous USD 27.1 billion recorded in FY23, says the country’s Central Bank.
Under LRS, all resident individuals, including minors, can remit up to USD 250,000 abroad a year without prior approval from the RBI.
International travel has increased as a result of rising disposable income and the nation’s aspirational middle class. Following the lifting of travel restrictions imposed by the Covid-19 pandemic, this trend continued to gain momentum.
“The share of maintenance of close relatives has remained around 15 pc 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 Indian public sector bank, Bank of Baroda says.
RBI says this surge occurred despite the imposition of tax collection at source (TCS). However, analysis shows a drop in the monthly average spending following the TCS implementation in October 2023.
With a rise in the number of those travelling abroad, outward foreign exchange remittances jumped to almost USD 1.42 billion (INR 125 billion) a month on an average in 2023-24 compared with just USD 400 million (INR 33 billion) a month on an average five years ago in 2018-19.
Travel has emerged as the primary source of remittance outflow from India, accounting for 53.6 pc of total outflows in FY24 from just 1.5 pc share in 2013-14 and 35 pc in 2018-19.
According to RBI data, Indians took out a total of USD 17 billion in 2023-24 for overseas travel under the RBI’s liberalised remittances scheme (LRS). This is 24.4 pc more compared with USD 13.66 billion in the previous year.
Resident Indians are also investing more abroad, data shows. In 2023-24, they invested on an average USD 100 million abroad every month in foreign equity and debt as against USD 1.25 billion in the full year 2022-23, RBI data shows.
Remittances for ‘maintenance of close relatives abroad’ were USD 4.61 billion and ‘studies abroad’ were USD 3.47 billion in 2023-24.
“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 report by Bank of Baroda, a public sector bank.
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 pc from October 1, compared with 5 pc. TCS will not be levied on credit card spending abroad.
