Six (6) Holes in Your Foreign Remittances

Service Exports of India amount to USD 323 Billion in FY 2022-23. This is a huge foreign exchange amount for Indian economy. Here we are discussing six holes in foreign remittances which Indians must bear while receiving exports proceeds in their bank accounts.

Hole No. 1: SWIFT/Wire charges by foreign bank: This is an amount which the foreign client bank deducts while sending money to your account. It may be fixed or variable linked to the gross remittance amount. It varies from USD 15 to USD 100. Your client deducts this charge from your gross remittance. Let us say, your gross remittance is USD 1000, you will be paid USD 985 at lower side.

Hole No. 2: Intermediary bank charges by foreign bank: As international transactions are mainly in dollar terms, the money moves to an intermediary correspondent bank or multiple correspondent banks, typically located in western countries. Each of these banks will charge its own fees. This fee will be typically about 5-10% of gross remittance. So, in our example, the intermediary banks will be charging you somewhere around $ 50. Your gross remittance gets reduced to $ 935.

Hole No. 3: Charges on rate difference by Indian bank: While getting the money in your account, you receive forex rate lower than the prevailing market rate. This difference is the income of the bank. This may be to the extent of $ 10 in the above example. Your gross remittance gets further reduced to $ 925.

Hole No. 4: Conversion and platform fees by the Indian bank/fintech platforms: This is not disclosed upfront and may be deducted subsequently. This may range from 3% to 5%. In our example, your gross remittance gets further reduced to by approx.. $ 28 and your money is now $897.

Hole No. 5: Service fees for FIRC may range from Rs. 200 to 500 ($3-$4). Your gross remittance goes lower to $894.

From the gross remittance amount of $ 1000, you are now left with $ 894.

Hole 6: Goods and Services Tax: Then you are liable for payment of GST and you may not able to take credit. Let us have a look over GST rate from HDFC Bank.

?All foreign exchange transactions are subject to levy of Goods and Services Tax (GST), which is payable in addition to the charges mentioned above. Presently, the applicable rate of GST is as under:

1.?? On amount of commission, fees and charges (including Full Value charges) paid - @ 18% of amount of the commission/fees/charges.

2.?? On amount of foreign currency exchanged as per slabs upto maximum GST of INR 10800/

The above discussion leads us to seriously consider some alternative mechanism like UPI in international transactions. The Government of India must be aware to this huge cost for international transactions, particularly the amount going into pockets of foreign banks.

In case you have any concern or need any clarity regarding the foreign exchange remittances or FEMA compliances, you may like to contact us.

Abhinarayan Mishra, FCA, FCS, Managing Partner, KPAM & Associates, Chartered Accountants; +9910744992; [email protected]