In the first half of FY24, money sent abroad by Indians under the Liberalised Remittance Scheme (LRS) hit a record high of $18.34 billion. This is a 37 per cent jump compared to the remittance in the corresponding period in the last fiscal. Under the Reserve Bank of India’s LRS, all resident Indians can freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
Even though LRS remittance dipped during the pandemic, it started picking up from the second half of FY22, surpassing pre-pandemic levels. It has been growing steadily since then. But that being said, there is a probability of these remittances falling in H2FY24 after the centre issued a new directive to raise the Tax Collection at Source (TCS) from 5% to 20% on certain foreign remittances under the Liberalised Remittance Scheme (LRS), effective from October 1.
Holidaying abroad
In H1FY24, a major part of the LRS remittance, close to 51 per cent, was spent on travel. The travel component alone amounts to $9.3 billion. It is followed by maintenance of close relatives ($3.05 billion), gifts ($2.26 billion) and studies abroad ($1.8 billion).
Due to pandemic-related travel restrictions, remittances for travel abroad remained stagnant for almost two years. However, data suggests a shift in December 2021 when $884 million was remitted for travel. Since then, remittances on travel have been steadily increasing, reaching $2.03 billion in August and $9.3 billion in September 2023.
“Since travel restrictions imposed during the pandemic have been lifted, many Indian families are looking eagerly to travel abroad now,” says Riaz Thingna, Partner, Grant Thornton Bharat. He adds that work-from-home policies imposed during the pandemic have helped a lot of Indians who work in the corporate sector to save more money. “They are looking at now spending that on foreign travel,” he says.
RBI’s data shows that remittances for the maintenance of close relatives rank as the second-highest priority. Remittances in this category remained relatively consistent, ranging from $250 million to $300 million every month. However, there was a sudden peak in March of this year, reaching $630 million, followed by the highest remittance of $890 million in June. This is followed by gifts.
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“Many HNIs and their families are looking to relocate outside India spurred by better access to education and health-care facilities, work-life balance, quality of life, stable political environment and favourable tax policies,” says Thingna, explaining this trend.
Radhika Piplani, Chief Economist, DAM Capital Advisors, also made a similar point. She further said, Additionally, many individuals wish to send their children abroad for better opportunities, which could lead to taking care of their family members overseas, and this leads to higher remittance for the maintenance of close relatives.”
According to RBI data, remittances for studies abroad rank fourth. Surprisingly, during the pandemic period, remittances in this category increased every month until August 2021 ($780 million) and September 2021 ($718 million). However, since then, remittances have shown a declining trend every month, with some notable fluctuations in the middle of 2022-23. Explaining this rise, Thigna said, “During the pandemic, many students opted to delay the courses and started only once travel restrictions were lifted, which was in 2021.”