An IT professional working in San Francisco sends a part of her salary to her parents in Bengaluru. A student from India needs to pay their university tuition in Canada. A freelance designer in Mumbai has just completed a project for a client in Dubai and is waiting to get paid.
Now, all these are everyday stories from our deeply connected world. While they seem different, they all rely on the same fundamental financial process: foreign remittance. It might sound like a strict banking term, but it’s a powerful force in our global economy, an invisible thread connecting families, powering businesses, and enabling dreams across borders.
In this guide, we’ll break down everything you need to know about foreign remittance: what it is, how it works, and why it matters so much, especially in India.
Key Takeaways
What it is: Foreign remittance is simply the act of sending money from one country to another. It can be for personal reasons (like supporting family) or for business (like paying an invoice).
India’s Role: India is the world’s largest recipient of remittances, receiving over $125 billion in 2023 alone. This is a massive source of foreign exchange for the country.
The Process: International transfers are more complex than domestic ones. They involve currency conversion, compliance checks, and secure networks like SWIFT to move money between banks globally.
Regulations are Key: In India, remittances are governed by the RBI and FEMA. The Liberalised Remittance Scheme (LRS) sets limits, and taxes like TCS apply to outward transfers above certain thresholds.
Choosing a Service Matters: While traditional banks are a trusted option, modern FinTech platforms often offer faster, cheaper, and more transparent services for sending and receiving money internationally.
What is Foreign Remittance?
At its core, foreign remittance is the transfer of money by a person in a foreign country to an individual or business in their home country. Think of it as a money transfer that crosses a national border.
While the term is famously associated with migrant workers sending their savings home, its meaning has expanded to cover any cross-border payment.
Here’s a simple analogy
Think of domestic transfers like UPI or NEFT as local courier services, fast and simple. Foreign remittance is like international air mail. It needs to go through customs (compliance checks), get its currency converted (like changing languages), and travel through a global network to reach its destination safely.
Foreign Remittance Meaning in the Real World
Let’s make it tangible. You are participating in foreign remittance when you:
- Send money from Dubai to your family in Kerala for household expenses.
- Pay for an online course from a university based in the UK.
- Receive payment in your Indian bank account from a US client for your freelance work.
What is Foreign Remittance in Banking?
For banks, foreign remittance is a formal process. Unlike a simple domestic transfer, it involves several extra steps. When you ask a bank to send money abroad, they don’t just “send” it. They use a secure messaging network, most commonly SWIFT (Society for Worldwide Interbank Financial Telecommunication), to send a payment order to the recipient’s bank. This process includes verifying your identity, checking against anti-money laundering regulations, and converting the currency.
What is International Remittance?
You’ll often hear “international remittance” used interchangeably with “foreign remittance,” and for the most part, they mean the same thing. “International remittance” is a slightly broader term that encompasses all cross-border transfers, while “foreign remittance” often has the traditional connotation of funds being sent back to a home country.
Common Use Cases
International remittance is the engine behind many global activities:
- Supporting Families: This is the classic use case, where migrant workers send money home to cover essentials like food, education, and healthcare.
- Overseas Education: Parents in India send money to their children studying abroad to cover tuition and living costs.
- Global Freelancers & Creators: A growing number of Indian professionals receive payments from international clients for their services.
- Cross-border eCommerce: An Indian business pays a supplier in China for goods or a SaaS company in India collects subscription fees from customers worldwide.
Types of Foreign Remittance
Remittances can be categorized based on the direction of the money flow and its purpose.
Inward vs. Outward Remittance
- Inward Remittance: This is when money comes into India from another country. For example, when a software exporter in Hyderabad receives payment from a client in Germany.
- Outward Remittance: This is when money is sent from India to another country. For example, when you invest in the US stock market or send a monetary gift to a relative in Australia.
Personal vs. Business Remittance
- Personal Remittance: These are non-commercial payments made between individuals. The purpose is usually family support, gifts, or funding personal education.
- Business Remittance: These payments are for commercial purposes, such as paying for imports, receiving export earnings, or settling an international business invoice. The regulations and documentation required for business
What Happens When You Send Money Internationally?
The journey of money across borders is a well-orchestrated process.
The Process Flow
- Sender Initiates the Transfer: You provide the recipient’s details (name, bank account, SWIFT/IBAN code) and the amount to your bank or FinTech service.
- Compliance and Currency Conversion: The service provider verifies your identity and checks the transaction against legal guidelines (like FEMA in India). They then convert your money into the recipient’s currency at a specific exchange rate.
- Funds Move Through the Network: The money is transferred via a secure network (like SWIFT) from your bank to the recipient’s bank. Sometimes, it may pass through one or more intermediary banks.
- Funds are Delivered: The recipient’s bank receives the payment order, clears the funds, and credits the amount to the recipient’s account.
Channels for Sending Foreign Remittance
You have several options to choose from, each with its pros and cons.
| Channel | Best For | Pros | Cons |
| Traditional Banks | Large, high-value transfers (e.g., university fees, property) | Highly secure, trusted | Slower (1-5 days), higher fees, less favorable FX rates |
| FinTech Platforms (e.g., Wise, Remitly) | Personal transfers, freelancer payments | Fast (0-2 days), transparent fees, better FX rates | May have limits on transfer amounts |
| Payment Processors (e.g., Razorpay) | Businesses, exporters, SaaS companies | Automated compliance (FIRC), seamless integration, competitive rates | Primarily designed for business, not personal gifting |
Regulations, Limits & Tax on Foreign Remittance (India)
Sending money out of India isn’t a free-for-all. The process is regulated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) to manage the country’s foreign exchange reserves.
RBI & FEMA Guidelines
The most important regulation for individuals is the Liberalised Remittance Scheme (LRS). Under LRS, a resident Indian can send up to $250,000 USD per financial year for permissible purposes like travel, education, medical treatment, or investments.
For a detailed breakdown, you can explore Razorpay’s guide to the Liberalised Remittance Scheme (LRS).
GST and TCS on Foreign Remittance
When you send money abroad from India, taxes may apply. The key one to know is TCS (Tax Collected at Source).
- The Rule: For outward remittances under LRS, a TCS of 20% is applied on the amount exceeding a threshold of ₹7 lakh in a financial year.
- Exemptions: This rate is reduced to 5% if the remittance is for education financed by a loan, and 0.5% on the amount above ₹7 lakh. For education and medical purposes not financed by a loan, a 5% TCS applies on the amount above ₹7 lakh.
- Is it a Loss? Not necessarily. Think of TCS not as a final tax, but as an advance tax payment. You can claim this amount back as a refund or adjust it against your total income tax liability when you file your tax returns (ITR).
Benefits & Risks of Foreign Remittance
Like any financial activity, remittance has its upsides and challenges.
Benefits
- Financial Lifeline: It provides crucial support to families, helping cover essential needs and improve their quality of life.
- Boosts National Economy: For countries like India, remittance is a major source of foreign currency, which helps stabilize the national economy.
- Enables Global Commerce: It allows freelancers and businesses to operate on a global scale, receiving payments and paying suppliers seamlessly.
Risks & Challenges
- Exchange Rate Fluctuations: The value of money can change between the time it’s sent and received, potentially resulting in a loss.
- High Fees: Traditional banks, in particular, can charge high transaction fees and hide costs in unfavorable exchange rates.
- Compliance Delays: Incorrect information or regulatory checks can sometimes delay the transfer, causing inconvenience.
How to Choose the Right Remittance Service
Making the right choice can save you time, money, and stress.
Factors to Consider
- Speed: How quickly does the recipient need the money?
- Fees & Exchange Rate: What is the total cost? Look for transparency. A low fee can be offset by a poor exchange rate.
- Security: Is the provider regulated and do they have strong security measures?
- Ease of Use: Is the process simple and can it be done online or through an app?
Pro Tip:
Always compare the final amount the recipient will get, not just the upfront fee. The real cost is often hidden in the exchange rate markup.
Manage Foreign Remittance Effortlessly with Razorpay
Looking for a secure, compliant, and efficient way to handle foreign remittances for your business? Whether you’re a freelancer, SaaS provider, exporter, or global business, Razorpay has you covered.
With Razorpay’s Export and Import Solutions, you can:
- Accept international payments from customers in 100+ countries.
- Send money abroad for imports, vendor payments, or operational expenses.
- Get full RBI and FEMA compliance support, including auto-generated FIRC.
- Enjoy transparent FX rates and zero hidden fees.
Simplify International Payments with Razorpay
Power your global growth with Razorpay’s trusted cross-border payment infrastructure.
Frequently Asked Questions (FAQs)
Q1. What is foreign remittance?
It’s the process of sending money from one country to another. It can be a personal transfer to family or a business payment for goods and services.
Q2. How is it different from an international remittance?
The terms are largely interchangeable. Both refer to cross-border money transfers.
Q3. How does foreign remittance work?
A sender initiates a transfer through a bank or FinTech service. The service provider handles compliance, converts the currency, and sends the funds through a secure network to the recipient’s bank account.
Q4. Is foreign remittance taxable in India?
Inward remittances received from relatives are generally not taxable. However, outward remittances from India above ₹7 lakh are subject to Tax Collected at Source (TCS), which can be claimed back when filing taxes. Income received from foreign clients is taxable as per your income slab.
Q5. What are the main types of foreign remittance?
They can be categorized as inward (money coming into the country) vs. outward (money going out), and personal (family support) vs. business (commercial payments).
Q6. How much money can be sent from India abroad?
Under the RBI’s Liberalized Remittance Scheme (LRS), an individual can send up to $250,000 USD per financial year.
