Toss-up between banks and transfer agents

Shop around for the best exchange rate and the lowest fees

Receiving money from a family member abroad could become costlier. The government has decided to re-introduce the service tax on inward remittances from abroad. However, since the money is being charged on the fee or commission and not on the amount of money, experts are hoping that the impact will not be much.

Inward remittance services were first brought under the ambit of service tax in 2012, but were subsequently taken off after pressure from the NRI community. However, the government has once again decided to tax it. The circular to this effect was issued on October 14.  How inward remittance works is that the sender or remitter approaches Money Transfer Service Operator (MTSO) or bank outside India for remitting the money to the beneficiary or receiver. For this, the sender has to pay a fee to the MTSO/bank.

The MTSO/bank then takes the help of an agent in India, this could be a bank, NBFC or even a retailer for delivering the money to the receiver. For this MTSO/bank pays a commission to the Indian agent. The Indian agent may directly deliver the money to the receiver or in some cases appoint a sub-agent for delivering the money.  It is not yet clear if the service tax will now be paid by the MTSO or by the Indian agent, says Sudesh Giriyan, vice-president and business head, Xpress Money. "Either one partner or both partners may agree to share the service tax. It is still uncertain and we are still in talks with our agents to understand how it will work,'' he says.

As of now the sender pays the commission to the MTSO or the bank. The commission varies depending on the country and the amount that is sent. For instance, in case of Xpress Money, the commission for sending up to 1,000 dirhams (Rs 16,990) is 15 dirhams (Rs 250). For more than 1000 dirhams, the commission is 20 dirhams (Rs 335). The service tax of 12.3 per cent will be charged on Rs 250. This may push up the commission to about Rs 280.  

According to the World Bank’s report, ‘The migration and development brief’ of October 2014, India will receive $71 billion through remittances this year.  In addition to the commission, you also have to pay a foreign currency conversion charge. According to an official from a public sector bank, banks were charging service tax only on the conversion charge. Now they will charge service tax for the remittance fee.

For instance, according to data provided by Bankbazaar.com, State Bank of India charges a foreign currency conversion charge of Rs 250 plus service tax between 0.12 per cent and 0.012 per cent, depending on the amount that is remitted. The bank has interbank money transfer charges between Rs 6 and Rs 100, depending on the currency. Bank of Baroda charges a flat fee of 3 to 9 dollar/euro/pound on the respective slab and currency.

To cut costs, those sending money to India can look for the bank that offers the best exchange rate for converting the ‘pay-in’ currency to the ‘pay-out’ currency. This rate not only varies from bank to bank, but could also fluctuate on a particular day, the official says. So, a bank that does not charge any remittance fee might be offering you lesser dollars for your rupee.  For instance, on October 21, ICICI Bank offered Rs 17.75 for one dirham, while Axis Bank offered between Rs 17.59 and 17.38. So, you can check which bank offers a better rate before transferring. But you will not be able to do a bank-to-bank transfer without a bank account, which you can do through an MTSO.