As the number of globe-trotting Indians surges and Indians increasingly look outward for investments and education, the utilisation of RBI’s Liberalised Remittance Scheme (LRS) has been scaling new highs. The money sent abroad under this scheme during April 2023-January 2024 was the highest ever, at $27.4 billion. This is higher than the remittance of $27.1 billion recorded in the 12 months of FY23.
Outflow for foreign travel made up 54 per cent of the total in the first 10 months; this category was also 30 per cent higher than the corresponding period of FY23. Expenses relating to overseas education made up 11 per cent of the total spend, rising 2 per cent.
The RBI’s LRS allows residents to remit up to $250,000 per financial year for any permissible current or capital account transaction, or a combination of both.
The TCS hit
The new TCS (tax collected at source) regime introduced in the 2023-24 Budget seems to have had only a limited impact. While the LRS outflow recorded 38 per cent and 14 per cent month-on-month decline in October and November 2023, respectively, remittances have rebounded since then.
Through a proposal in the Budget 2023-24, the TCS rates on all categories of LRS, other than medical and education, was raised from 5 per cent to 20 per cent.This was to take effect from July 1, 2023. However, the date was pushed to October 1, 2023, following public outcry. A leeway was also given by making TCS applicable only ifthe remittance exceeded ₹7 lakh per financial year, per person.
Madan Sabnavis, Chief Economist, Bank of Baroda, notes that TCS is not an additional tax liability and one can claim a refund while filing returns. “The cashflow crunch is temporary and will not impact the underlying genuine reasons why people remit money abroad,” he said, adding that the intention behind the TCS on LRS is to track the money being sent abroad.
Another economist of a global bank, who did not want to be named, says that as long as Indians’ appetite for overseas education and foreign travel holds strong, remittances will only go up in the coming years.
Investing overseas
With an eye on diversification, retail investors have been increasing allocation to global markets, especially the US over the last three years. During the ten-month period, from April 2023-January 2024, the value of investments in foreign equity and debt stood at $1.2 billion, almost equal to the $1.3 billion recorded in full FY23.
“AI stocks such as Nvidia and Microsoft and the lure of Elon Musk’s Tesla have been some of the drivers,” explains Viram Shah, Co-founder and CEO, Vested Finance. Vested Finance is a platform that supports investing in US stock markets and reported a trading volume of $400 million in the last 12 months.