Context:

Remittances under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) dropped by 6.84% in FY2025 — the first such decline since the Covid-19 pandemic disrupted overseas travel and education. Total outward remittances stood at $29.56 billion, down from $31.74 billion in FY2024.

Key Factors behind the Decline:

·         Sharp Drop in Education Remittances

o    Student remittances fell 16% to $2.92 billion, from $3.48 billion in the previous year.

o    This is primarily due to tighter visa rules in key destinations such as Canada, the US, and the UK.

o    For context, remittances for education had peaked at $4.98 billion in FY2020, before the pandemic.

·         Simultaneous Decline Across Destinations

o    For the first time in four years, Indian student numbers fell in all three top host countries.

o    Canada: Only 30,640 study permits issued from January–March 2025 — a 31% decline year-on-year.

o    US and UK also saw over 25% reduction in student permits for Indian nationals.

Travel Statistics:

·         Travel Remittances

o    Slight dip from $17 billion to $16.96 billion, but still the largest segment under LRS.

o    Travel outflows have grown 144% since FY2021, when they stood at just $6.95 billion.

o    Suggests sustained interest in international travel, though the pace has moderated.

·         Delayed or Dropped Travel Plans

o    Volatile global markets and economic uncertainty caused many to postpone or cancel foreign trips.

o    Despite this, travel alone accounts for 57% of all LRS outflows in FY2025.

Growth in Overseas Investments:

·         Investment in Foreign Stocks and Bonds rose by 12.51% to $1.699 billion, up from $1.51 billion the year before which indicates growing interest among Indian investors in global diversification.

Tax Policy Changes Impacting Outflows:

·         TCS Threshold Raised

o    In the Union Budget 2025, TCS (Tax Collected at Source) threshold under LRS was increased from ₹7 lakh to ₹10 lakh.

o    Intended to support outbound sectors like tourism, education, and airlines.

·         TCS on Tour Packages

o    TCS on overseas tour packages rose from 5% to 20% (from October 1, 2023).

o    However, credit card spending abroad is exempt from TCS.

·         Bank Compliance Measures

o    LRS transactions processed by banks for air tickets or hotels over ₹10 lakh are now subject to 20% TCS.

o    Though refundable at tax filing, the upfront cost affects liquidity.

About Liberalised Remittance Scheme (LRS):

The Liberalised Remittance Scheme (LRS), governed by FEMA and regulated by RBI, allows resident individuals to remit up to USD 250,000 annually for travel, education, medical treatment, investments, and maintenance of relatives abroad.

·        Corporates trusts, and HUFs are excluded.

·        Foreign currency accounts abroad are also permitted under LRS.

Conclusion:

The first post-pandemic decline in LRS remittances signals a shift in India’s global financial engagements. Education-related outflows are falling due to visa restrictions, even as overseas investments and travel remain robust. With policy tweaks like raised TCS thresholds, and a volatile global economy, outward remittances are entering a new phase — more selective, more strategic, and more regulated.