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Ultimate Guide: Inward Remittance Meaning, Benefit, and Procedure

Every year, a large amount of money is transferred from businesses and NRIs outside India into bank accounts within India.  

Bank transactions usually take a long time. 

It may be a few days at the very least. 

However individual or business inward remittances don't take a long time if done through the right service provider. 

In this blog post we delve into the depths of inward remittance meaning, what are the benefits of inward remittances and so much more. 

Read on… 

Inward Remittance Meaning 

Let us explain the meaning of inward remittance with an example. To say it in very simple terms if someone working or staying abroad seeks to send money to India, it qualifies as an inward remittance for the receiving party. 

As per the FEMA guidelines of the government, taxes on these remittances may be charged according to the purpose it serves.

Generally, medical and educational inward remittances do not attract extra transfer costs. However, business inward remittances, gifts, travel, etc most definitely attract a higher charge. 

Even if the money is invested across borders, it could be as inward remittance or outward remittance, the investment will be taxed. 

Under the guidelines of the Reserve Bank of India (RBI) and FEMA for inward remittances, the following individuals can receive money without being taxed 

  • Parents or children of the sender (lineal family connection)
  • Spouse of the sender
  • Siblings
  • Siblings of the spouse

Inward Remittance RBI Guidelines

The Reserve Bank of India (RBI) has come up with certain guidelines to regulate inward remittances effectively:

Inward remittances are permitted so long as their purposes serve a right cause. No money laundering is tolerated in the name of education expenses, medical treatment, travel expenses, investments, donations, living expenses, etc. 

Every single inward remittance needs a document called a Foreign Inward Remittance Certificate (FIRC) issued by the receiver’s bank. 

The RBI also makes mention of the two ways inward remittances can be facilitated:- 

They may receive inward remittances through two methods: Rupee Drawing Arrangement (RDA) or Money Transfer Service Scheme (MTSS).

For personal purposes, you may make a limitless number of inward remittances under the RDA.

Under the MTSS, each inward remittance has a maximum cap of $2500.There is another aspect that needs to be considered. One specific recipient can receive a maximum of 30 inward remittances in one year under the MTSS.

Benefits of Inward Remittance

It is a pretty well-known fact that India stands as one of the largest recipients of foreign remittances, 

It could be NRIs or even businesses that have contributed to inward remittances of about  $89 billion and above in 2022-23 alone. Inward remittances play a super important role when it comes to payments regarding foreign exchange reserves. 

Process of Inward Remittance

Receiving money online through a remittance is a simple process. To ensure the transaction gets through, you will need to provide specific details to the sender. 

Details may include:-

  • Full name, 
  • address, 
  • local bank account number, 
  • bank name and address, 
  • bank's SWIFT code, 
  • Purpose of the remittance* 

*Make Note: Purpose of remittance is very important as the GST taxes on inward remittances you are liable to pay for the transaction will depend on the purpose of remittance that you mention. 

How Do You Use Inward Remittance?

The Sender 

  1. The simplest way to start is, the sender first needs to initiate the transaction. This is done by paying a visit to the bank (obviously tedious), or by initiating an online forex transaction. 

The sender needs to have the following details before initiating an inward remittance or outward remittance

Once the transaction is finalized, the sender's bank provides an update. This can be in the form of an SMS or bank app alert. 

The tracking is usually done on the user dashboard provided by the bank to the account holder. 

The Remittee

The receiver of the funds upon receiving the funds, will NOT get access to the funds immediately. 

In fact, as a double safety measure, the remittee's bank holds them temporarily to conduct compliance checks. 

The remittee is responsible for contacting their bank and providing any necessary documents, to then complete the transaction. 

Details that are generally asked at this stage of the transaction include: 

  • Contract
  • Remittance information
  • Payment Invoice
  • Purpose code indicating the type of transaction

The receiver will need to maintain proper record-keeping for future reference. This is not just the responsibility of the sender. 

Pro Tip: Obtain a copy of the FIRC from your bank for documentation purposes. This helps in validating every transaction. 

Bank Charges for Foreign Inward Remittance

The fees are very subjective. But in general, some of the fees applicable for inward payments are:- 

  • Conversion Charges: If the remittance is in a foreign currency, the bank may charge a fee for converting the amount into Indian Rupees.
  • Service Charges: Banks may levy a service charge or transaction fee for processing the inward remittance.
  • Correspondent Bank Charges: In certain cases, the remitting bank or correspondent bank involved in the transfer may deduct their charges, which can vary depending on the arrangement.
  • GST (Goods and Services Tax): Banks may apply GST on the service charges or fees associated with inward remittances.

How to receive international payments as a freelancer in India?

Receiving international payments as a freelancer in India involves selecting an appropriate payment method and furnishing the requisite details to your clients. Here's a step-by-step guide:

  1. Discuss Payment Method: Initiate a conversation with your client to mutually agree on the preferred payment method. Common options include bank transfers, PayPal, payment gateways, or platforms like Wise (formerly TransferWise).

  1. Set Up a Bank Account: For those opting for bank wire transfers, ensure the availability of an international bank account. Provide your client with the necessary bank details, including the International Bank Account Number (IBAN number) and the Bank Identifier Code (BIC) or SWIFT code.

  1. Create a PayPal Account: Opting for PayPal? Establish a PayPal account and share your PayPal email address with your client. PayPal facilitates payments in multiple currencies.

  1. Use Payment Gateways: Explore payment gateways such as Stripe, Payoneer, or Skrill. Establish an account and share the requisite payment details with your client.

  1. Consider Freelancing Platforms: If you operate on freelancing platforms like Upwork or Fiverr, transactions may be processed through the platform itself. Familiarize yourself with the available payment options on the platform.

  1. Explore Cryptocurrency: For those open to cryptocurrency payments, set up a digital wallet and share your cryptocurrency address if both you and your client are comfortable with this option.

  1. Provide Detailed Invoices: Whether using your chosen payment method or a freelancing platform, consistently furnish detailed invoices outlining the services provided, associated costs, and payment particulars. This practice ensures transparency and aids in record-keeping.

  1. Understand Fees and Exchange Rates: Be cognizant of any fees linked to your chosen payment method, encompassing currency conversion fees. A clear understanding of the overall cost ensures you receive the anticipated amount.

  1. Comply with Tax Regulations: Stay abreast of tax regulations associated with international income. Seeking guidance from a tax professional is advisable to ensure compliance with Indian tax laws.

  1. Regularly Check Your Accounts: Regularly monitor your bank account, PayPal, or other platforms for incoming payments. This regular check helps promptly identify any issues or discrepancies.

Make Note: Don't stress about getting a FIRC (Foreign Inward Remittance Certificate) as a freelancer or a private limited company. Just share your PAN number and provide the invoice for the services you've provided. Freelancers will receive their international payments in their savings accounts post-processing.

Is FIRC mandatory for freelancers?

Yes. A FIRC is mandatory for all inward remittance processes. However, do remember that the issuance of the FIRC is handled exclusively by the processing bank. In the case of Karbon Forex, JP Morgan issues the FIRC. 

Make note: If you're freelancing from India and using Karbon Forex for international payments, you won't need a bunch of documents. Just give us your PAN number, name, address, and a quick note about the type of service you're offering – and you're good to go! 

What is an inward payment?

An inward payment or inward remittance is a financial transaction where funds are moved or received into a specific account within a particular country. This term is frequently employed in the realm of international transactions or remittances.

For instance, if an individual from a foreign country sends money to a person or business in your country, that transaction is categorized as an inward payment. In the context of business or trade, inward payments encompass payments for goods or services, investments, or other financial transactions entering a country.

Inward payments stand in contrast to outward payments, which involve funds departing from a country or account. These terms are widely utilized in the field of international finance and are crucial for comprehending the flow of funds in cross-border transactions.

Who can receive inward remittances?

Recipients in India have the option to receive cross-border inbound remittances through both banking and postal channels. Banks possess general authorization to establish partnerships with other banks for the facilitation of remittance transactions.

Bottom Line 

When selecting an inward remittance method, it is crucial to examine the service fees charged by the provider.

More than anything else,  it is important for you to check the currency exchange rates at the time of transfer and consider the processing time required for the transaction. 

Sending money to countries that handle a larger volume of remittances may result in lower costs due to economies of scale. This just means, that if we took India for example, a large number of inward and outward remittances occur. This is why the handling fees and costs will be relatively lower. 

So choose your payment provider wisely to make the best use of cheap markup fees. 

If you have more questions on the documentation required, or the minimum time taken to do forex inward remittance, feel free to get in touch! 

FAQ on Inward Remittance

What are the two types of remittance?

There are two types of remittances - inward remittance and outward remittance. 

Inward Remittance:

  • International Transfers: Refers to funds sent from individuals or entities in foreign countries to a recipient in the home country.
  • Gifts and Inheritances: Involves receiving funds as gifts or inheritance from sources overseas.
  • Payments for Services: This entails receiving money for services provided to international clients or entities.

Outward Remittance:

  • Family Support: Involves sending money to family members residing in another country to provide financial assistance.
  • International Payments: Encompasses making payments for goods, services, or investments to entities located in foreign countries.
  • Investing Abroad: Entails sending funds for investments in businesses or ventures situated outside the home country.

What is the difference between inward and outward remittance?

Inbound remittance refers to receiving funds into your account, whether from another domestic account or from an account situated outside India. Conversely, outbound remittance involves the transfer of funds in the form of foreign exchange by an account holder in India to a recipient located outside the country.

How Do You Obtain Inward Remittance?

Inward remittance can be obtained through:- 

Salaried Worker: If you are a salaried worker receiving your compensation in foreign currency, you are eligible to receive inward remittance. This applies to individuals who work abroad and receive their salary in a currency other than the local currency.

Freelancers: Freelancers who receive payments in foreign currency for their services are also eligible to receive inward remittance. This includes professionals working in fields such as writing, design, programming, and more.

E-commerce Shop Owners: If you run an e-commerce shop and receive payments in foreign currency for the products or services you sell online, you can obtain inward remittance. This applies to businesses engaged in cross-border trade.

Is It Safe to Remit Money?

Transferring money internationally can often be a daunting task. However, you can ensure the safety and security of your payments by selecting a reputable service provider. It is essential to carefully choose a reliable provider to handle your transaction.

Additionally, before initiating the transfer, make sure you have all the necessary details of the recipient. Having accurate and complete information about the recipient, including their full name, bank account details, and any additional required information, will help ensure a smooth and successful transaction.

How Can You Remit Money?

In today's global remittance landscape, there are multiple options available to facilitate the transfer of funds. Here are some commonly used methods:

  • Wire Transfer or Bank Transfer: This method involves sending money between two banks electronically. It is one of the most widely used options for remittance.
  • Mobile Money: With mobile money, you can send funds to an electronic wallet or mobile account. This method is convenient, especially in regions where mobile banking services are prevalent.
  • Cash Pickup: Cash pickup has gained popularity as a remittance method. In this process, you send money to a designated provider, and the recipient can collect the funds at a specified location by presenting their identification and confirmation number.
  • Home Delivery: For added convenience, there is an option for cash to be delivered directly to a specified address. Home delivery is beneficial in remote areas or congested towns where travel may pose a problem.

Do banks charge for inward remittance?

Yes. Traditional banks may charge a 2-3% fee on gross transaction volume for processing inward remittances.

What is an example of inward remittance?

An example of inward remittance is when someone living in another country sends money to their family's bank account back home. Let's say a person working in the United States sends money to their parents' bank account in India. In this situation, the money sent from the U.S. to India is called an inward remittance.

How do I send inward remittance?

Fintechs like Karbon Forex provide inward remittance services to Pvt Ltd companies, sole props, and freelancers. The charges vary between 1-3% depending on various factors. Contact us to know more! 

Which remittances are not chargeable tax?

Some common examples include:

  • Gifts from Relatives: Money received as a gift from specified relatives is generally not taxable. Relatives include parents, spouses, siblings, and lineal descendants.
  • Inheritance: Inherited money is typically not subject to income tax.
  • Scholarships and Awards: Money received as scholarships or awards for education purposes may be exempt from tax.
  • Wedding Gifts: Gifts received during a wedding ceremony are generally not taxable.
  • Money Received from NRI Relatives: Money received from Non-Resident Indian (NRI) relatives may be exempt from tax under certain conditions.

How is remittance calculated?

Banks charge 2-6% of transaction volume as remittance fees. While fintechs like Karbon charge 1-3%, a rough idea of the remittance charges can be seen as follows. 

1. Transfer Amount:

  • You want to send £1,000 from the United Kingdom to a recipient in India.

2. Transfer Fee:

  • The remittance service charges a flat fee of £10 for the transaction.

3. Exchange Rates:

  • The service provider applies an exchange rate with a margin of 1%, impacting the overall amount received by the recipient. For the £1,000 transfer, the exchange rate impact might be £10.

4. Transfer Method:

  • You choose an online transfer method, and there is no additional fee for this option.

5. Speed of Transfer:

  • If you opt for a standard transfer time of 3-5 business days, there is no extra charge. However, if you want an expedited transfer within 24 hours, there might be an additional fee of £5.

6. Service Provider:

  • Different remittance service providers may have different fee structures. Let's say you compare a few options and find that Provider B has the lowest overall fees for your specific transfer.

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