India’s Outward remittances Decreases under Liberalised Remittance Scheme

Syllabus: GS3/ Economy

Context

• India’s outward remittances under the Liberalised Remittance Scheme (LRS) moderated by 6.85 percent year-on-year (YoY) to $29.56 billion in FY25, after reaching an all-time high of $31.73 billion in FY24.

What is Outward Remittance?

• Outward remittance refers to the transfer of money in foreign currency by a resident of India to a person or entity outside India, for purposes such as education, travel, medical treatment, investment, or gifting.

What is the Liberalised Remittance Scheme (LRS)?

• LRS was introduced in 2004 by the Reserve Bank of India (RBI).
• It allows resident individuals (including minors) to remit up to $250,000 per financial year for permissible current or capital account transactions.
• Initially launched with a $25,000 limit, later increased to current levels.
• Remittances can be made for;
  • Education and studies abroad,
  • Travel and tourism,
  • Medical treatment abroad,
  • Purchase of property, 
  • Investment in foreign securities or businesses.
• LRS is governed under the Foreign Exchange Management Act (FEMA), 1999.

Key Trends in FY25

• Travel Remittances emerged as the largest component, accounting for $16.96 billion, or over 57% of total outflows.
  • It indicates a growing preference for international travel among Indian residents despite a marginal dip from FY24.
• Education Remittances declined 16% year-on-year, from $3.48 billion in FY24 to $2.92 billion in FY25.
• Investment Abroad: The funds remitted by Indians to invest in foreign equity and debt rose by 12.51%, reaching $1.699 billion in FY25 compared to $1.51 billion in FY24.
  • It reflects growing interest in diversifying portfolios and accessing global financial markets.

Policy Changes & Tax Implications

• Union Budget 2025, raised the Tax Collected at Source (TCS) threshold on LRS transactions from ₹7 lakh to ₹10 lakh, providing relief to middle-class travellers and students.
• TCS on LRS:
  • 20% TCS applies to overseas tour packages above ₹10 lakh.
  • TCS is not an extra tax, as it is adjustable against final tax liability.
  • Credit card spending abroad is excluded from TCS under LRS.

Why did student remittances decline?

• Global Visa Restrictions: Major destinations like US, UK, Canada saw 25–31% declines in Indian student visas.
• Economic Uncertainty: Families postponed study and travel plans due to global financial volatility.
• High Base Effect: Remittances were at peak levels in FY24, making a decline statistically likely.

Way Ahead

• India’s outward remittances under LRS reflect both the aspirations of a growing middle class and the challenges posed by global economic dynamics. 
• While travel and investment continue to rise, falling student remittances highlight the importance of immigration policies abroad. 
• Policy responses, such as rationalising TCS and easing compliance, aim to strike a balance between enabling individual freedom and maintaining macroeconomic prudence.

Source: BS