Remittance Explained: Meaning, Process & Purpose in International Payments

Whether it’s an IT professional in the US sending money to their family in India, a student paying tuition fees to a foreign university, or a business paying an overseas supplier, the act of transferring money across geographies is fundamental to our global economy. The financial term for this action is remittance.

While it may sound technical, understanding remittance is essential for anyone who sends or receives money, especially across borders. This guide will explain in simple terms what remittance means, the different types, its purpose, and how the process works in banking.

What Is Remittance?

In simple terms, a remittance is a sum of money sent from one party to another, usually across a geographical distance. While the term can apply to any money transfer, it is most famously used to describe the funds sent by migrant workers back to their families in their home countries. This act of sending money is a cornerstone of the global economy, connecting families and supporting households across the world.

However, the meaning of remittance extends far beyond personal support. In today’s interconnected world, it has become a vital term for businesses, freelancers, and exporters as well.

What Does Remittance Mean in Practice?

Remittance is a part of everyday life for millions of people and businesses. You are participating in remittance in various common scenarios, which can be broadly grouped into personal and business activities.

For Individuals & Families

This is the most common understanding of remittance, focusing on personal financial support and life events.

• Supporting Loved Ones: Sending a portion of your salary to support your parents living in your hometown or another country.
• Funding Education: Transferring funds to pay for a child’s university tuition and living expenses abroad.
• Gifting and Special Occasions: Sending a monetary gift to a relative for a wedding, festival, or birthday.

For Businesses & Freelancers

In the commercial world, remittance is the engine that drives global trade and services.

• Paying Global Talent: Paying an invoice to a freelance web developer in another country for their services.
• Receiving International Revenue: An Indian SaaS company collecting monthly subscription fees from customers across Europe.
• Managing Supply Chains: An exporter paying an overseas supplier for raw materials or manufactured goods.

Types of Remittance

Remittances can be categorized based on their direction, geography, and purpose.

Inward vs. Outward Remittance:

• • Inward Remittance: Money received from a foreign country. For example, when a software exporter in India receives a payment from a client in the USA, it is an inward remittance for India.
  • Outward Remittance: Money sent to a foreign country. For instance, an Indian parent paying their child’s university fees in Canada is making an outward remittance.

Domestic vs. International Remittance:

• • Domestic Remittance: Funds transferred within the same country. These are typically faster and cheaper, using networks like NEFT or UPI.
  • International Remittance: Funds transferred across borders. These are more complex, often slower, and involve currency conversion and higher fees.

Personal vs. Business Remittance:

• • Personal Remittance: Non-commercial payments between individuals, primarily for family support, gifts, or personal investments.
  • Business Remittance: Payments made for commercial purposes, such as paying for imports, receiving export earnings, or settling international business invoices.

What Is Remittance in Banking?

In the banking sector, remittance refers to the process of facilitating the transfer of funds from a sender to a beneficiary through secure and regulated channels.

• How Banks Handle Remittance: Banks use established networks to process remittances. For domestic transfers, they use systems like NEFT and RTGS. For international transfers, they primarily rely on the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network to securely send payment orders to banks in other countries.
• Bank Charges & Fees: Banks charge various fees for remittance services, including transaction fees, correspondent bank charges for international transfers, and currency conversion fees, which are often embedded in the exchange rate.
• Role of RBI & Regulations in India: In India, all remittance activities are governed by the Reserve Bank of India (RBI) to ensure compliance with laws like the Foreign Exchange Management Act (FEMA). For outward personal remittances, the RBI’s Liberalized Remittance Scheme (LRS) sets the rules and limits.

Remittance in India: A Global Leader

India is the world’s largest recipient of remittances. According to a World Bank report, India was estimated to receive over $125 billion in remittances in 2023, making it a critical source of foreign exchange and a lifeline for millions of families.

Beyond personal remittances, India’s booming service economy has created a massive new corridor for business remittances. This includes payments received by IT companies, SaaS businesses, freelance consultants, and digital exporters for their services rendered to global clients.

For these businesses, receiving international payments efficiently is not just a convenience—it’s a core operational necessity. Proper documentation, such as a Foreign Inward Remittance Certificate (FIRC), is crucial for these transactions to ensure they are compliant and can be correctly accounted for as export revenue.

Purpose of Remittance: Why It Matters

Understanding why money is sent across borders helps clarify the vital role remittance plays in the global economy, for families, and for businesses.

1. Family Support & Household Needs

This is the heart of personal remittance. For millions of Non-Resident Indians (NRIs), sending money home is a fundamental way to support their families. These funds are not just supplementary income; they are often the primary source for covering essential household expenses like rent, utilities, and daily living costs. Beyond necessities, these remittances also power festive gifting, donations, and help families build a better financial future.

2. Funding Education & Healthcare

Remittances are frequently used for high-value, life-changing purposes. A significant portion of outward remittance from India is directed towards paying international university tuition fees and covering student living expenses abroad. Conversely, inward remittances often fund specialized medical treatments, enabling access to better healthcare facilities either in India or overseas.

3. Powering Business Operations

In the business world, remittance is the engine of global trade. For companies, these are not personal transfers but critical operational cash flows. Common business remittances include:

• Paying for services: Sending payments to international freelancers, consultants, or marketing agencies for their work.
• Receiving revenue: Indian SaaS companies receiving monthly subscription payments from their global user base.
• Managing global teams: Enterprises remitting funds to cover the payroll and operational costs of their overseas offices.

Remittance Services Available in India

Whether you are sending or receiving money internationally, you have several remittance services to choose from in India, each with its own pros and cons.

1. Traditional Banks

This is the oldest and most established method. Both public sector banks (like SBI) and private banks (like HDFC and ICICI) offer remittance services. They use secure channels like the SWIFT network for international transfers and are often trusted for large-value transactions like property investment or university fees. However, the process can be slower (1-5 business days), may require physical visits to a branch, and often involves less favorable exchange rates.

2. Modern FinTech Platforms

Digital-first companies have revolutionized the remittance landscape by offering faster, cheaper, and more user-friendly cross border payment services.

• Razorpay: Ideal for Indian freelancers, exporters, and businesses looking to accept international payments easily with automated compliance and fast INR settlement.
• Wise (formerly TransferWise): A popular choice for person-to-person transfers, known for its transparent fee structure and mid-market exchange rates.
• PayPal / Western Union: These platforms are widely recognized globally and are particularly useful for small-value personal transfers or when the recipient needs to pick up cash quickly.

Comparing Your Options: Speed, Cost, and Accessibility

Here’s a quick comparison to help you choose the right service:

How to Make a Remittance: A Step-by-Step Guide

Sending a remittance is a straightforward process if you follow these steps:

1. Choose a Service Provider: Decide whether to use a traditional bank or a modern fintech platform like Razorpay. Compare their fees, exchange rates, and transfer speeds.
2. Verify Beneficiary Information: Double-check the recipient’s name, account number, and bank details (like IFSC for domestic or SWIFT code for international) to prevent errors and delays.
3. Calculate Fees & Exchange Rates: Before confirming, understand the total cost. This includes any upfront transaction fees plus potential hidden charges in the currency conversion rate.
4. Initiate & Track the Transaction: Once you initiate the payment, your service provider should offer a way to track its status through SMS, email alerts, or an online dashboard.

Simplify Your Business’s International Payments with Razorpay

While “remittance” is a broad term, your business requires more than just a basic money transfer service. You need a powerful solution built for global commerce.

Razorpay provides a complete cross-border payment platform designed specifically for Indian businesses, exporters, and freelancers. We handle the complexities of international business payments so you can focus on growth.

• Effortless International Collections: Accept payments from clients across the globe seamlessly.
• Automated Compliance: Get auto-generated FIRC and other essential documentation without the manual hassle.
• Competitive FX Rates: Maximize your earnings with transparent and competitive currency conversion rates.
• Unified Dashboard: Manage all your domestic and international transactions in one place for easy reconciliation.

Experience faster, secure cross-border transactions and manage your global revenue effortlessly. Explore Razorpay International Payments.

FAQs

What is remittance? 

Remittance is the act of sending money from one party to another, typically across a geographical distance. While it can be domestic, it most often refers to international money transfers made by migrant workers, businesses paying for imports/exports, or individuals sending money to family abroad.

What does remittance mean in banking? 

In banking, remittance refers to the secure transfer of funds between accounts, facilitated by the bank. This includes processing domestic transfers via NEFT/RTGS and international payments via networks like SWIFT, while ensuring compliance with financial regulations.

What are the types of remittance? 

The main types of remittance include inward (receiving money from abroad) and outward (sending money abroad), domestic (within a country) and international (across borders), and personal (family support) versus business (invoice payments).

Is remittance taxable in India? 

Remittances received by relatives from abroad are generally not taxable in India. However, if the remittance is considered income (e.g., payment for services by a freelancer), it is subject to income tax. It’s always best to consult a tax professional for specific cases.

How long does a remittance take? 

A domestic remittance via UPI or IMPS can be instant. A bank transfer via NEFT can take a few hours. An international remittance can take anywhere from a few minutes with a modern fintech platform to 2-5 business days through traditional banking channels.

What’s the difference between remittance and payment? 

“Payment” is a broad term for any transaction where money is exchanged for goods or services. “Remittance” is a more specific type of payment that emphasizes the transfer of money over a distance, often without a direct, immediate exchange of goods (e.g., sending money to family).