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Difference between inward and outward remittance: What you need to know

In India, is there a difference between inward and outward remittance? One is where money goes out of the country and the other is where money is coming in. 

But apparently, the processes involved in both are worlds apart. Money leaving the country is monitored with more skepticism than the one that comes in.The limit on outward remittance, the charges, and taxes in outward remittance are completely different from the ones involved in inward remittance. 

So what is it then? What sets the two apart? In this blog post, we talk about what the difference between inward and outward remittance is, examples of outward remittance, and more.

Read on to find out…

What is the difference between inward and outward remittance?

1. Direction of Flow

Inward Remittance: Refers to the process of receiving funds from a foreign source into a domestic account. Incoming money in a country generally has fewer restrictions. 

Outward Remittance: Involves sending funds from a domestic account to a foreign destination. Several restrictions are placed on money leaving the country. Added to it, the outward remittance process is very complicated, especially if it involves countries like Russia, Ukraine, and Israel. The geopolitical landscape in the case of outward remittance plays a major role. 

This is one of the major differences between inward and outward remittance. 

2. Purpose

Inward Remittance: Between inward and outward remittance, inward remittance typically occurs for reasons such as family support, investments, or income earned abroad. In the case of business inward remittances, an Indian vendor seeking payment for his services from a client outside India will need to use the inward remittance process to get paid. 

Outward Remittance: This can be for reasons including education, medical expenses, gifting, maintenance of close relatives, or donations to charitable causes.

3. Regulations and Compliance

Inward Remittance: Governed by the regulations of the recipient country, a company needs to ensure compliance with foreign exchange laws.

Outward remittance: Rules for sending money out of India are set by the Foreign Exchange Management Act (FEMA). This is to make external trade and payments smooth and ensure the foreign exchange market in India works well.

4. Initiator

Inward Remittance: Initiated by those sending money to the receiver residing in a different country.

Outward Remittance: Initiated by the party or individual residing in the domestic country and sending funds to a receiver located abroad.

5. Documentation

Inward Remittance: Involves documentation such as proof of purpose, identity verification, and compliance with the receiving country's regulations.

In India, the required information needs to be provided which includes:- 

  1. Company Email
  2. Permanent Address
  3. Bank Account Details
  4. Owner's PAN card 
  5. Company PAN card
  6. Owner’s Aadhar Card
  7. GST Certificate 

Outward Remittance: Requires documentation to confirm the purpose of the transfer, comply with foreign exchange laws, and confirm the legitimacy of the transaction.

  1. Outward Remittance: The following documents are needed:- 
  2. No permanent establishment (NoPE)
  3. TRC certificate
  4. Form 10F

6. Financial Institution Involvement

Inward Remittance: Involves the recipient's local bank in facilitating the transfer and ensuring compliance with regulatory requirements.

Outward Remittance: Involves the sender's local bank facilitating the transfer, adhering to the regulations of the home country.

7. Currency Exchange

Inward Remittance: Involves the conversion of foreign currency into domestic currency.

Outward Remittance: Requires the conversion of domestic currency into the currency of the foreign destination.

8. Transaction Limits

Inward Remittance: Typically, there are no rigid restrictions on the total amount received. In the case of inward remittances to India, there are no limitations on incoming funds.

Outward Remittance: Outflows of funds are scrutinized by the RBI and the government of India. However, there is no set transaction limit for international business transactions when it comes to business outward remittances from India. Additionally, there are no restrictions on transactions with high monetary values, allowing each transaction to be completed in one go.

What is an example of outward remittance?

We can consider the example of a business international payment. An example of outward remittance in a business context in India could be a company making a payment to an overseas supplier for the purchase of raw materials or goods. In this scenario:

The purpose of the outward remittance is to pay for imported goods or services essential for business operations.

The Indian company, as the remitter, initiates the outward remittance by providing details of the foreign supplier's bank account to their authorized bank in India. The bank ensures the international transfer of funds from the company's Indian Rupee (INR) account to the supplier's foreign account in the designated currency.

The company would need to provide relevant documents, such as purchase invoices, contracts, and any other documentation required by the bank for compliance and record-keeping purposes.

What is the purpose of remittance in banking?

  1. More Money to Use 

Getting money from abroad can give businesses more money to pay for their everyday needs or invest in growing.

  1. No Reliance on One Source

When businesses get money from different countries, they don't have to depend on just one place. It helps them stay strong even if one market has problems.

  1. To Meet More People

Getting money from other countries means businesses are probably working with people from around the world. This could open up doors for new partnerships. 

  1. Get More Value from Money

If a business gets paid money from another country, sometimes they can make more money when they change it into their currency. The simplest example is USD to INR conversion. 

  1. Help with Buying and Selling Across Borders

Money from other countries helps businesses pay for things they buy from other countries or get paid for things they sell to other countries.

  1. Working Together with Other Countries

When a business gets money from other countries, it means they're working together with people or companies from those places. This helps them share ideas and resources.

  1. Helping the Economy

When businesses get money from other countries, it doesn't just help them. it also helps their home country's economy by creating jobs and making things better.

  1. Staying Stable with Money

Getting money regularly from other countries helps businesses plan for the future and not worry too much about money problems.

  1. Saving Money Sometimes

Depending on how things are in the money markets, businesses might even save some money when they get paid from other countries, especially if costs are lower there.

  1. Thinking of New Ideas and Staying Competitive

Dealing with people from different countries can give businesses new ideas and help them stay ahead in their industry.

  1. Making Transactions Easier

When businesses get money from other countries using efficient methods, it makes it easier and faster to handle their finances.

  1. Playing it Safe with Money

Getting money from other countries helps businesses spread out the places they get money from. It's like playing it safe, especially when things are uncertain in their own country.

Bottom Line 

In the business inward remittance landscape, volatility can only be expected. There exists a huge gap in forex margins between banks and fintech entities. Therefore, settling down on an appropriate fintech that offers the best rates, will save you both time and money for your future transactions. 

To learn about Karbon Forex rates, contact us here

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