Money Transfer Service Scheme

Taxation
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January 20, 2022

The money transfer service scheme is a fast and simple way of transmitting personal funds (remittances) abroad to India’s beneficiaries. Only inward personal payments made into India, such as family maintenance and remittances favoring foreign tourists visiting India, are permissible. It is a tie-up between overseas principals (reputed money transfer abroad companies) and Indian agents who provide funds to India’s beneficiaries at current exchange rates.

Salient characteristics of MTSS

Only personal remittances such as remittances towards one’s expenses and payments favoring foreign tourists visiting India can be sent through MTSS. Trade-related payments, remittances towards the purchase of property, investments or credit to NRE/ FCNR accounts etc. or donations/ contributions to a charitable organization are not allowed under this arrangement.
Maximal remittance with a ceiling of USD 2500.
Amount up to 50,000/- may be paid in cash. Any amount beyond the limit of 50,000/- shall be paid using cheque/ DD/PO or credited directly to the beneficiary’s account.
Only 30 transactions per beneficiary are allowed in a calendar year.
Remittance is made in INR only, without any abstraction of charges from the beneficiary.
Reliable, swift and convenient.
It is a hassle-free instantaneous payment to the beneficiary against photo identification.
The strategy does not envisage repatriation of such inward remittances.

The distinction between MTTS (money transfer service scheme) and RDA (rupee drawing arrangement)
RDA is a method by which the money can be received from foreign in the remittance form. RDA is only limited to individuals, but money can be transferred up to a certain limit through RDA for trade. In this way, only AD-I category bank is allowed to transact. For money exchange under RDA, authorized exchange houses as their representative overseas are used by the certified banks, which the RBI approves. Remitted money is moved to the receiver’s bank account, while no remittance in cash is permitted. Under RDA, there is no such limit on the money transfer to the individual’s bank account. There is an upper limit on the exchange of money of Rs 5 lakhs for trade. There is no facility for cash payment under RDA.

RDA and MTSS are slightly different from the viewpoint of the RBI. Inward remittance via MTSS transfers fund services outside India, which work by coordinating certified agents in India. Funds cannot be transferred by this way for trade or charity. There are definite limits for inward remittance through MTSS, which are topped at USD 2,500 per transfer; along with this, a maximum limit of thirty transfers can be received by a particular receiver in one calendar year.

Under MTSS, there is a grant for cash transfers. However, currently, for cash transfer, there is a limit of Rs 50,000, and in case of a sum more than Rs 50,000, it will be paid through cheque, DD, etc. But in the case of foreigners or tourists, more than Rs 50,000 is permitted through MTSS.

Who is an overseas principal?
The overseas principal must be a registered entity, licensed by the central bank/ government or financial regulatory authority of the country concerned for moving on activities related to money transfer. The state of registration of the overseas principal should be AML compliant. In addition, the overseas principal should obtain necessary allowance from the department of payment and settlement systems, Reserve Bank of India, under the Payment and Settlement Systems Act (PSS Act), 2007, to commence/ operate a payment system.

What are the guidelines for the overseas principal?
Following documents are needed to be submitted by the applicant Indian agent, in respect of their overseas principals:

The registered entity should have a minimum net worth of at least US $ 1 million.
The Apex bank may relax the minimal net worth criterion in the case of overseas principals incorporated in FATF member countries administered by the government authority.
The overseas principal must be well established in the money transfer business with a track record of operations in well-regulated markets.
The facility or arrangement with overseas principal should considerably increase access/ entry to formal (legal) money transfer facilities at both ends. It means both countries must be benefited from this type of arrangement.
They must be filed with the overseas trade/ industry bodies.
They should have acquired a good rating from one of the international credit rating agencies.
A secret report must be yielded from at least two of its bankers.
A certified report should be yielded by independent CAs, on the subject of initiation to follow anti-money laundering norms in the home/ host country.
It will be the complete authority of the overseas principal regarding the activities of their agents and sub-agents in India.

Overseas principals have to maintain proper remitter’s records as beneficiaries of all pay-outs in India. Therefore, on-demand to the Reserve bank or other agencies of the government of India, ministry of finance, ministry of home affairs, FIU-IND etc., records and full particulars of the parties should be attainable.

Who is an Indian agent?
To become an Indian agent, the applicant must be an authorized dealer category-I bank, an authorized dealer category-II, a full-fledged money changer (FFMC), or the department of posts. Additionally, the Indian agents can also appoint sub-agents, retail outlets, commercial entities having a place of business and whose bonafides are admissible to the Indian agent.

Procedure for submission of details in respect of sub-agents by Indian agents
Indian agents should submit every quarter necessary information in the prescribed format in soft copy form pertaining to their sub-agents appointed during a quarter with fifteen days from the end of the quarter, to the particular regional offices of the foreign exchange department of the Reserve bank under whose jurisdiction the registered office of the Indian agent falls for onward submission to the ministry of home affairs, govt. of India through the ministry of finance, govt. of India. In case of any demur by the MHA, the sub-agency arrangement concerned should be terminated immediately. Indian agents should also furnish certificated that their sub-agents comply with the eligibility norms. Also, they have done due diligence, wherever apt, regarding their sub-agents.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, tax advisory and other related services by providing them with adequate support and guidance from our end. If you have any questions or wish to know more about Money transfer service scheme, kindly contact us.