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Outward remittances under the Reserve Bank of India’s (RBI’s) liberalised remittance scheme (LRS) surged by 50.64 per cent to $9.1 billion in the April-June quarter (first quarter, or Q1) of 2023–24 (FY24), driven by healthy growth across segments due to a revision in the timeline of tax collected at source under the LRS scheme and normalisation in international travel.
Major drivers include equity and debt investments, deposits, and the international travel segment, among others.
According to the latest RBI data, the amount remitted under LRS stood at $9.1 billion in Q1FY24, compared with $6.05 billion in the same quarter last year.
Outward remittances saw an increase of 17 per cent from the last quarter of 2022-23 (FY23).
The LRS scheme was introduced in 2004, allowing all resident individuals to remit up to $250,000 per financial year for any permissible current or capital account transaction, or a combination of both, free of charge.
In the initial phase, the scheme was introduced with a limit of $25,000, which was gradually revised.
The outflows under the scheme were driven by a strong increase in equity and debt investments, the purchase of immoveable properties, and deposits compared to the previous year.
Investments in equity and debt schemes increased to $503.73 million in Q1FY24, up from $223.74 million in the year-ago period.
Similarly, the purchase of immoveable property saw a nearly 122 per cent surge to $89.94 million.
Deposits overseas surged by nearly 62 per cent to $430.59 million.
The surge in remittances to these sectors is attributed to Indians taking advantage of the postponement of tax collected at source on LRS regulations to October 1, 2023.
Following suit, remittances for the maintenance of close relatives also increased by 78.22 per cent to $1,831 million from $1,027.38 million in the year-ago period.
Meanwhile, the gift segment rose to $1,374.46 million from $770.66 million in Q1FY23.
“The surge in outward remittances is possible due to the change in the LRS tax scheme, which might have resulted in the increase in sub-heads like deposits, immoveable property, and equity or debt investment.
"Furthermore, the uptrend in these segments is expected to continue in the upcoming months as well, as Indians will attempt to capitalise on the benefits of the revision in the timeline of the tax scheme,” said Radhika Piplani, chief economist at DAM Capital Advisors.
During the Union Budget FY23, the government had proposed raising tax collected at source on liberalised foreign remittances to 20 per cent from the existing 5 per cent on amounts exceeding Rs 7 lakh for all purposes except education and medical treatment.
The revision was initially scheduled to be effective from July 1, 2023, but the Ministry of Finance later deferred it to October 1, 2023.
Another key segment, international travel, saw healthy growth of 39 per cent to $4,078.01 million during the quarter under review, up from $2,918.68 million in the year-ago period, due to the normalisation of international travel.
In Q1FY23, international travel was impacted by the Russia-Ukraine war.
“The normalisation of travel patterns and tourism in Q1FY24, along with improved investment in foreign assets, have contributed to the surge in outward remittances.
"Q1FY23 was a very turbulent time with the beginning of the Russia-Ukraine conflict, which would have lowered the base due to uncertainty affecting travel and investment in foreign assets by Indians,” said Sakshi Gupta, principal economist at HDFC Bank.
Among these sections, spending among Indians on overseas education saw a marginal decline of nearly 6 per cent to $694.41 million from $738.42 million in the same period last year.
