The government’s move was aimed at reducing outbound remittances, which increased in the post Covid 19 phase. However, that stratagem does not seem to have worked. 

In FY 2014, India’s outbound remittances stood at just US$ 1.1 billion. In FY 2024, it increased to US$ 31.73 billion– a 40 per cent CAGR (compound annual growth rate) driven to a large extent by travel expenses.

Interestingly, the growth rate is significantly higher than the approximate 6 per cent CAGR of remittance inflows during the same period which made India the leader in the global list of countries receiving remittances.

Barring remittances directed towards healthcare and education expenses, all other categories attract a TCS of 20 per cent.

Going Global With Big Spends

"The post-Covid period has seen a faster rise in income and wealth for the top 5-10 per cent earners in this country and that has whetted their appetite for going global," said Prof Biswajit Dhar, former director general of the Indian Institute for Foreign Trade.

According to a study by Bank of Baroda, travel accounted for 53.6 per cent of total outflows in FY 2024 from just 1.5 per cent share in FY 2014. In FY 2014, remittances towards ‘gifts’ had the highest share.

“Seasonal factors, such as summer holidays and festival seasons, contributed to a surge in travel-related remittances from April onward,” Abhilasha Jaju, Director, BFSI vertical, 1Lattice, a tech-enabled decision support organisation, told The Secretariat.

“However, the 20 per cent TCS change could heavily influence remittance trends, especially for travel, gifting, and other discretionary spending,” Jaju said.

July saw a year-on-year increase in travel remittances by over 17 per cent reflecting increased travel during vacation months.

Growing Investment in Global Markets

Growing affluence and income levels have also led to larger remittances towards the global debt and equity market despite global uncertainties. Most financial advisers are now asking their clients to diversify their investment portfolio.

Remittances towards equities and debt instruments in global stock exchanges have increased too. In 2014 this head saw just US $ 200 million move out of India. By FY 2022 outward remittances of US$ 746 million was made towards debt and equity instruments, a three-and-a-half fold rise in eight years.

However by FY 2024, this spending had doubled in just two years to grow to US$1.51 billion. “Indian investors are increasingly investing abroad for diversification, access to high-growth sectors, and protection against rupee depreciation,” Dhirendra Kumar, CEO, Value Research told The Secretariat.

“With rising financial awareness, Indians see global equities and debt as essential to building a balanced, resilient portfolio,” he said, adding that easier regulations including the revised LRS threshold is driving outbound remittances.

Expanding Remittance Scheme 

The Liberalised Remittance Scheme, introduced in February 2004 with a limit of US$25,000 only, has been revised several times consistent with prevailing macro and micro economic conditions.

Currently resident Indians including minors are allowed to freely remit up to US$ 2,50,000 every financial year (April – March) for any permissible current or capital account transaction or a combination of both.

Besides the golden visa programme offered by several countries has also caught the attention of the high net worth individuals (HNIs) with many now opting to buy properties outside the country.

Dubai, Singapore along with several European countries are turning out to be hot favourites for Indians looking to buy homes.

Typically in India, HNIs are those with investable assets of over Rs 5 crore. 

In 2022, India boasted of 797,714 HNIs. As per reports, the number is set to more than double by 2027, reaching an impressive 1.65 million. In 2014, there were just 2,080 ultra high net worth individuals in India.

Tax Implications

The increase in outbound remittances has raised the government’s concerns prompting it to impose a whopping 20 per cent TCS last year. The move, however, has come under severe criticism.

Former RBI Governor Urjit Patel in an article has called it a regressive move.

“It is unclear whether this vicarious tax is a forex measure dressed up as a fiscal measure or vice versa,” he said, adding that the backdrop is a rise in remittances post-Covid, a durable spike in outward foreign direct investment (FDI) and a precipitous drop in inward FDI.

“TCS on remittances under LRS has no economic virtue worth the name, hence we must get rid of it,” he pointed out.