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This article is written by Paridhi Dave, a student at the Institute of Law, Nirma University. This is an exhaustive article which deals with the laws in India regarding International Transactions. 


In the contemporary era of globalization, there is an increase in the number of transactions. There is a growing trend in terms of international trade. The internationalisation of production, an increase in global commercial services and e-commerce activity has led to an overall increase in cross-border payments. Moreover, factors such as migration to foreign countries, overseas tourism, overseas education, employment opportunities, etc. have made cross-border transactions important in contemporary times.

This article covers the meaning of international payments, the laws applicable and the important concepts.

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International payments

An international payment simply means a transaction wherein the sender and the receiver of a stipulated amount of money are located in two separate countries/jurisdictions. Cross-border transactions can take place between individuals, companies, banking institutions or government agencies. Every day, there are millions of transactions across the world. Therefore, there is a rising need for the regulation of such transactions.

Purposes of cross-border payments






Person to person transaction

It can include transferring money to family, relatives or friends for the purposes of education, healthcare, migration, etc.

Person to Business transaction

This includes payments made for purchasing goods and services from abroad, business travel or overseas tourism

Person to Government transaction

This includes payments made by individuals to the governmental agencies or other public sector organizations


Business to Person transaction

This includes the payment of salaries, bonuses, reimbursements, etc.  to employees who reside abroad. 

Business to Business transaction

This includes payments made to foreign suppliers or payment for services obtained from abroad

Business to Government transaction

This includes payment in the form of tariffs paid by the exporters to overseas authorities 


Government to Person transaction

This includes payments such as pension to retired persons or support for people who reside overseas

Government to Business transaction

This includes payments made for the purchases from international suppliers

Government to Government transaction

This includes payments made concerning international aid, etc.

Laws governing international payments

All the countries have their specific rules and regulations about governing their financial markets and foreign exchange. The Reserve Bank of India is obligated to fulfil this duty in India. The umbrella legislation regulating the inward and outward remittances in India is the Foreign Exchange Management Act, 1999 (FEMA). Several rules and regulations have been established in furtherance of this Act.

The purpose of this legislation is two-fold:

  1. To ensure that the money remitted out of India does not have its roots in some crime. It is also to make sure that such outward remittance is not used for illegal purposes, such as funding terrorism.
  2. It helps the Reserve Bank of India to stabilize the local currency markets, by ensuring that there is no sudden outflow of money from India, which could have negative consequences on the economy.

FEMA is the legislation which replaced the Foreign Exchange Regulation Act, 1973 (FERA). The Indian economy was at an all-time low of foreign exchange reserves when FERA was introduced. The government strictly regulated all such foreign exchange transactions which had an impact on the Indian economy, directly or indirectly. But the legislation could not produce the desired results.

After the Liberalization, Privatization, Globalisation (LPG) Reforms, FERA remained of little value due to its strict regime. Consequently, FEMA was introduced by the government. This introduction of this legislation shows the shift from regulating to managing foreign exchange transactions.

Important terminologies under FEMA

Capital Account Transaction: 

It is defined under Section 2(e) of FEMA. It means a transaction which alters the assets or the liabilities, including contingent liabilities, outside India of belonging to the persons who are residing in India or alterations in assets and liabilities in India of persons who are residing outside India. 

Example: An Indian resident acquires shares of a foreign company, this leads to an increase in her overseas assets. This is a capital account transaction. 

Current Account Transaction: 

Defined under Section 2(j) of FEMA, it means and includes all other transactions that do not fall in the ambit of capital account transaction.

Example: If a person X in India sends money for the living expenses of his father Y, who is residing abroad, then this is a current account transaction.

Foreign Exchange: 

It is defined under Section 2(n) of FEMA. It has a broad definition as it means foreign currency and includes deposits, letters of credit, bills of exchange, travellers’ cheques, etc.

Person Resident in India: 

This is a significant term for the interpretation of several schemes laid down by the Reserve Bank of India.

The term is defined under Section 2(v) of FEMA. It says that a person who has resided in India for more than 182 days during the previous financial year is a resident. But there are certain exceptions:

  1. A person who goes out of India or stays out of India in the circumstances mentioned below is not covered under the ambit of this definition. 
  1. For taking up employment outside India;
  2. For carrying out a business or vocation outside India;
  3. For any other purposes which would depict such person’s intention to stay outside India for an uncertain duration.
  1. A person who comes to India or stays in India, for any purpose other than those mentioned below:
  1. For taking up employment in India;
  2. For carrying out a business or vocation in India;
  3. For any other purposes which would depict such person’s intention to stay in India for an uncertain duration.

The definition also includes any person or body corporate which is registered or incorporated in India, as a person resident in India. Further, any office, branch or agency in India which is owned or controlled by a person who is residing out of India is included in this definition. Any office, branch or agency which is outside India and is owned or controlled by a person who is residing in India is also covered under the ambit of this definition.

Authorised Dealer

Section 10(1) of FEMA mentions that any person who is specifically authorised by the Reserve Bank of India to deal in foreign exchange or foreign securities is called an Authorised Dealer.

What is a remittance?

Remittance simply means sending money as a payment or a gift to someone. 

  • Outward remittance generally means sending money out of India to some foreign country.

Eg: If X is a resident of India and sends money to the bank account of Z who lives in the USA, this counts as outward remittance. 

  • Inward remittance is when money is sent by a person residing in a foreign country to India.

Eg: If P is a person who is a resident of the UK, she sends money to her sister’s bank account, who lives in India, then this transaction is inward remittance.

Methods of Outward and Inward Remittances

  • Outward Remittances

The Reserve Bank of India has approved the following two methods of transferring money from India to a foreign country:

  1. Wire Transfer/ Telegraphic Transfer – This type of transaction usually means sending money through electronic transfer. The most used wire transfer system is SWIFT – Society for Worldwide Interbank Financial Telecommunication. This is an online facility which is widely available across all banks in India.
  2. Demand Draft – An individual can approach a bank to make a demand draft for the amount that they want to transfer. The draft is made in foreign currency and the equivalent amount of money in Indian Rupees is deducted from the person’s account.
  • Inward Remittances

Inward remittances are permitted by the Reserve Bank of India through banking channels without the imposition of any restrictions. The following are the most common forms of receiving inward remittances:

  1. Demand drafts, cheques (personal and bankers), international money orders
  2. Foreign currency in forms of notes, coins, traveller’s cheques, etc.
  3. Money Transfers or Telegraphic Transfers through banking channels
  4. Rupee Drawing Arrangement (RDA)
  5. Money Transfer Service Scheme (MTSS)

Outward Remittances

Outward Remittances by Individuals

The Liberalised Remittance Scheme (LRS) was introduced by the Reserve Bank of India in February 2004. It is a liberalization measure for the facilitation of resident individuals to remit funds abroad. This remittance is associated with a permitted current or capital account transaction or a combination of both. These regulations are flexible as they incorporate the changes made in the regulatory framework from time to time.

The Liberalised Remittance Scheme is for resident individuals, under which the authorised dealers are empowered to freely allow remittances by such resident individuals up to the amount of USD 2,50,000 per financial year. A financial year in India is counted from April to March. These remittances are allowed for any permitted current or capital account transaction or there could be a combination of both. It is important to note that the Scheme is not applicable to corporates, Hindu Undivided Family (HUF), partnership firms, trusts, etc.

This Scheme can also be availed by minors. If the remitter is a minor, then a form called A2 has to be countersigned by the natural guardian of the minor.

The remittances under this Scheme can be consolidated with respect to family members, subject to the condition that the individual family members have to comply with the terms and conditions laid down. 

Clubbing is not allowed by other family members for capital account transactions if they are not the co-owners or co-partners of the overseas bank account/investment/property under this Scheme. Capital account transactions are opening of a bank account, investments, purchasing property, etc.

LRS provides that all other types of transactions which are not allowed under FEMA and the transactions in the nature of remittance for margins or margin calls to overseas counterparty are not permissible under the Scheme. A margin account is a brokerage account, wherein the broker lends money to the customer for the purpose of either purchasing stocks or other financial products. A margin call is a demand for additional capital or securities to ensure that the minimum maintenance margin required for a margin account is fulfilled.

LRS lists down the permissible capital account transactions by an individual. These are listed below:

  1. Opening of a foreign currency account overseas with a bank;
  2. Purchasing a property overseas;
  3. Making investment overseas
  4. Establishing Wholly Owned Subsidiaries and Joint Ventures overseas for the purposes of a bonafide business, which is subjected to the terms and conditions laid down in the FEMA (Amendment Regulations), 2013.
  5. Giving loans, which includes loans in INR, to Non-Resident Indians who fall into the definition of relatives as per the Companies Act, 2013.

The Liberalized Remittances Scheme also applies to remittances under the current account transactions which are available to resident individuals under Paragraph 1, Schedule III, Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015.

These current account transactions include:

Private Visits

Any resident individual can avail foreign exchange up to the approximate amount of USD 2,50,000 from an Authorised Dealer or a Full Fledged Money Changer in any one financial year if they want to have a private visit abroad, irrespective of the frequency of visits in that year. This foreign visit does not include Nepal and Bhutan.

Moreover, all the tour related expenses are subsumed under this limit, as prescribed by the LRS. The tour operator can collect the amount from the resident traveller either in Indian Rupees or in foreign currency.


A resident individual can remit an amount of USD 2,50,000 in one financial year, as a gift to a person who is residing abroad. It can also be remitted as a donation to an organization situated outside India.

Overseas Employment

If a person is going overseas for an employment opportunity, they can draw foreign exchange up to USD 2,50,000 per financial year from any Authorised Dealer based in India.


A person who wants to emigrate is permitted to draw foreign exchange up to the amount prescribed by the country of emigration or USD 2,50,000. Further, any remittance beyond this limit will only be allowed for covering incidental expenses in the country of immigration. It is not allowed for earning credits to become eligible for immigration through overseas investments.

Maintenance of relatives staying abroad

The term relative is defined in Section 2(77) of the Companies Act, 2013. A resident individual is permitted to remit up to USD 2,50,000 for the maintenance of such relatives staying overseas.

Business Trip

A resident individual is permitted to avail foreign exchange worth USD 2,50,000 in one financial year, irrespective of the number of times they undertake business visits in that year. Business trips include international conferences, seminars, training, etc.

Overseas Medical Treatment

An individual can claim up to USD 2,50,000 for medical treatment abroad per financial year, from an Authorised Dealer. No estimates from the doctor or the hospital are required. Additionally, the person accompanying the patient, as an attendant, is also allowed to claim up to USD 2,50,000 in one financial year.

If a person travels abroad and falls sick, they can also claim a foreign exchange for medical treatment abroad. An authorised dealer can release the foreign exchange without the prior permission of the Reserve Bank of India.

Studying Abroad

A resident individual is permitted to draw foreign exchange up to USD 2,50,000 for studying abroad. There is no requirement of estimates from the foreign university.

The Central Government has also formed the Foreign Exchange Management (Current Account Transactions) Rules, 2000. 

Under Schedule- I of these Rules, the transactions which are not permitted have been laid down. FEMA prohibits the outward remittance of money from India to any other foreign country in the below-mentioned situations:

  1. Remittance attained out of lottery winnings;
  2. Remittance of income derived from racing/riding, etc. or some other hobby.
  3. Remittance for purchasing lottery tickets, banned magazines, football pools, sweepstakes, etc.
  4. Paying commission on exports made for equity investments in either Joint Ventures or Wholly Owned Subsidiaries located abroad of India-based companies.
  5. Remittance of dividend by a company to which the requirement of dividend balancing applies.
  6. Payment concerning ‘Call Back Services’ of telephones.
  7. Remittance of interest income on funds which are held under the Non-Resident Rupee Scheme Account.
  8. Paying commission on exports covered under the Rupee State Credit Route. An exception is a commission up to 10% allowed concerning invoice value of exports of tobacco and tea.

Schedule II of FEMA lays down the transactions concerning outward remittance, which require prior approval from the Central Government.

Schedule III of FEMA mentions the foreign transactions that the Reserve Bank of India needs to approve.

This Scheme allows remittances for purchasing art objects according to the conditions and provision of other applicable laws, eg: Foreign Trade Policy.

The LRS does not permit remittances for purposes which are specifically prohibited under Schedule I or any item restricted under Schedule II of the Foreign Exchange Management (Current Account Transaction) Rules, 2000. 

The Scheme is also not available for capital account remittances to the countries which have been declared as ‘non-cooperative’ countries by the Financial Action Task Force (FATF) or the Reserve Bank of India. Further, direct or indirect remittance to individuals or entities which have been identified as posing a risk of committing terrorism is also not permitted by the Reserve Bank of India.

In April 2018 the Government laid down a mandate that it is essential to produce a PAN Card for all outward remittances from India, irrespective of the amount being transferred.

Outward Remittances by Non-Resident Indians (NRI)

The non-resident Indians have to open NRO accounts for the purpose of overseas remittance. NRO stands for Non-Resident Ordinary Account. It is a bank account which is opened in India in the name of the NRI for managing the income earned by him in India. The scope of the term ‘income’ includes rent, pension, interest, dividend, etc.

The transaction limit for overseas remittance from NRO accounts is set at USD 1,000,000 per financial year (April-March).

Outward Remittances by Foreign Companies in India 

In the contemporary era of globalization, there are several Multinational Companies (MNCs) spread across the world. India also houses many foreign companies. The income earned by such companies is transferable to the country of their origin or simply, their home country.

The international companies can remit their income, dividends, profits, etc. earned in India to their home country after paying the taxes which are applicable to them. The investments made by such companies can also be remitted to the country of origin after tax deductions. However, investments in sectors such as defence are subjected to a lock-in period. A lock-in period is a period during which the investors are restricted from redeeming or selling shares of a particular investment.


Inward Remittances 

Inward Remittances to India are the highest in the world. This is due to the fact that India has one of the largest diasporas across the globe. In 2018, remittances to India amounted to USD 78.6 Billion.

As has been mentioned in the article, there are two major routes of inward remittances – the Rupee Drawing Arrangement (RDA) and the Money Transfer Service Scheme (MTSS).

Under the RDA Route, there is no limit on the amount of money that can be transferred to India concerning personal transactions. There is a limit applicable in case of business transfers. Under the MTTS Route, a limit of USD 2,500 is imposed per transaction. A maximum of thirty transactions can take place in a financial year w.r.t a single recipient. Both these payment methods should be carried out via authorised dealers in India.

Additionally, a Foreign Inward Remittance Certificate (FIRC) is also required. It acts as a receipt issued by banking institutions as a testimony of a transfer of funds from abroad to India.

An individual has to open an NRE Account for the purpose of inward remittances. A Non-Resident External Account is for the purposes of transferring foreign earnings to India. These accounts are exempted from tax.


There have been several reforms in the laws and regulations for the purpose of management of foreign exchange in India. The role of the State as a facilitator rather than a regulator has led to the benefit of the authorities as well as the citizens. There is a rising trend in cross-border transactions, which gives it a significant standing in the economy. Foreign exchange plays a huge role in the stabilization of an economy.


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