Money Transfer Service Scheme

Money Transfer Service Scheme- Key Features

Money Transfer Service Scheme

Money Transfer Service Scheme is the procedure in which money is transferred from a foreign country to India. It is a form of inward remittance which is done either by a Non-Resident Indian or a company to a resident family.  Remittances which are sent under the system of the Money Transfer Service Scheme are required for resident Indians for maintaining individuals.

Inward remittance as it is known as under the scheme of MTSS is meant for expenditure within India. A resident Indian uses these remittances for maintenance and other forms of expenditure.

Hence a scheme which involves the transfer of money from abroad to a resident in India is understood as money transfer service scheme. This scheme is only used for maintaining residents in India. Apart from this, foreign tourists who visit India temporarily can utilise the benefits under this scheme.

What is the primary law governing the Money Transfer Service Scheme?

Money Transfer Service scheme has been developed by the Reserve Bank of India (RBI). The Indian government, along with the RBI, brought out this scheme to favour foreign tourists who visit India temporarily.

Before introducing the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Regulation Act, 1973 (FERA) regulated all forms of transactions related to foreign exchange law in India. Due to restrictive practices and less amount of foreign remittance in the country, the government repealed FERA and brought out FEMA in the year 1999.

Under FEMA, the RBI issues rules to authorised dealers or authorised banks to carry out transactions on behalf of clients dealing with foreign exchange. All the benefits of the MTSS are present under the rules of FEMA.

The RBI, through section 11 of FEMA, brings out rules and circulars for regulating authorised dealers. Authorised dealers are permitted to carry out transactions on behalf of clients dealing in foreign exchange. Authorised dealers have to abide by the rules of RBI, which is raised from time to time.

What are the main institutions and parties under the MTSS?

Under the Money Transfer Service Scheme, the following institutions and parties are involved:

  • Entity or NRI
  • Overseas Principal
  • Indian Agent
  • RBI
  • Beneficiaries

 Entity or NRI- An entity can be defined as a company under the Companies Act 2013 or previous company law. This can even involve a foreign company which is included under the definition of a company. A Limited Liability partnership which is established outside India can also come under the definition of an entity. A Non-Resident Indian (NRI) is a person who is resident outside India for more than 182 days. Under the Finance Act, 2020, an individual would be considered an NRI if the individual satisfies the criteria of staying in India for more than 120 days. However, if this is considered, then the individual must have an annual income of more than 15 Lakhs.

Overseas Principal-  Any company or entity which is established abroad for carrying out money transfer activities are considered as overseas principals. Overseas Principle under the money transfer service scheme can satisfy the criteria of carrying out services related to money transfer activities or remitting any amount to India.

Indian Agent– An Agent in India is set up to receive funds from the overseas principal.  An Indian Agent can be either classified into the following:

  • Authorised Banks (Category-I) – Banks which are permitted to carry out foreign exchange transactions under this are considered authorised banks. The RBI regulates them.
  • Authorised Banks (Category-II)– This will include different forms of institutions such as non-banking institutions and other specific finance agencies that carry out activities related to receiving funds from an overseas principal.
  • Any other institution that is established to receive funds from an overseas principal.
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RBI- RBI is the primary regulatory institution that deals with establishing authorized dealers under the Foreign Exchange Management Act[1]. The RBI brings out circulars and master directions from time to time which authorised dealers to have to comply with. Any issues related to Foreign Exchange Matters must be directed to the RBI.

Beneficiaries- Under the Money Transfer Service Scheme, beneficiaries are resident Indians and foreigners who receive funds through this scheme. Beneficiaries are allocated funds under the scheme only for specific purposes. An entity remits the funds through the overseas principal. Funds remitted are received by the Indian Agent. Once received in the account of the Indian agent, the funds are transferred to the beneficiary.

Are there any other rules and regulations for the operation of the MTSS?

The RBI brought out the master direction that deals with transactions under the MTSS scheme. The master direction was issued in the year 2017. Under these guidelines, the power and authority of overseas principals and agents are included.  Overseas principals have to abide by different guidelines from time to time. Apart from this, the scheme also brought out definitive guidelines when it applies to Indian agents who are established under this scheme.

The following guidelines are required to be followed by overseas principals as well as Indian agents under this scheme:

  • Any form of inward remittance can occur only through the overseas principal. When transferring the remittance to India, overseas principals have to abide by the rules issued by their foreign regulatory bodies and other forms of authorities.
  • Under this scheme, authorised dealers are allowed to receive any form of inward remittance from the overseas principal.  They are only authorised and allowed to carry out different forms of transactions on behalf of beneficiaries under this scheme.
  • Authorised dealers or Agents who are appointed under this scheme have to act within the guidelines issued by the RBI from time to time.  If compliance is not met under this scheme, then Indian agents would not be allowed to receive any form of remittance under this scheme.
  • Under this scheme, inward remittance is allowed. This means any form of remittance which comes into normal banking channels is allowed. No form of outbound investment or remittance is allowed under this scheme.
  • Inbound remittance is only accepted under this scheme.
  • Any individual or company who want to use the outbound remittance must consider other methods. Like for example, an individual who wants to consider outward remittance or outbound remittance can do so under the liberalised remittance scheme. Under this scheme, up to USD 2, 50,000 can be transferred in a financial year. This scheme is used for maintaining relatives and other expenditures.
  • Under this scheme, remittance can be used to maintain family expenditure and expenses in India. This remittance has only specific purposes. Hence, it cannot be utilised for any other purpose under this scheme.
  • When foreign tourists are visiting India, then such remittance can be used. It can also be specifically used when a foreign tourist is visiting India for specific purposes. For example, a foreigner can use the funds under this scheme to maintain specific expenditures for science, research, arts, and carrying out scientific projects in India.
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How does the Money Transfer Service Scheme Operate?

The Money Transfer Service Scheme would operate based on the initial agreement, which is decided between the parties in the transaction.

The following process would be followed under the MTSS scheme:

  1. An arrangement would be agreed between the overseas principal and the Indian Agent. This arrangement would comprise a contract under the respective foreign exchange laws to ensure that remittance is sent through normal banking channels from the overseas principal to the Indian Agent.
  2. Once this agreement is negotiated between the parties and finalised, the funds would be ready for transfer from the overseas principal to the Indian Agent. An Indian Agent who is appointed under the Money Transfer Service Scheme can be an authorised dealer (Category-I, Category-II, Full Fledged Money Changer or any other form of Scheduled commercial bank).
  3. After the funds are transferred to the Indian agent, the funds would be readily available for use by the beneficiary. The funds which are allocated to the beneficiary must only be utilised for the specified purposes.

How can an application for an Indian Agent be made under the MTSS scheme?

Basically, an authorised dealer or an authorised bank is allowed to be an Indian agent under the Money Transfer Service Scheme.

 In order to satisfy the criteria to become an Indian agent under this scheme, the following has to be carried out:

  • An application must be made to the Department of Foreign Exchange, Reserve Bank of India.
  • Along with the application, the applicant must submit respective documentation along with respective fees for the application.

The following documents would be required to be submitted by the applicant:

  • Declaration from the Directorate of Revenue that no form of criminal or insolvency proceedings is present against the applicant.
  • Declaration from the Directorate of Enforcement that no forms of proceedings are present against the applicant.
  • Another declaration from the Directorate of Intelligence that no form of criminal proceedings is present against the applicant.
  • The applicant would have to submit respective due diligence documents and maintain records as required by the respective authority.
  • Along with due diligence documents, Know your client (KYC) documentation must be submitted by the applicant.
  • Any information under the provisions of Anti-Money Laundering and Counter-Terrorist Financing Must is submitted by the applicant. Apart from this, the RBI may ask for specific clearances which have to be got by the applicant.
  • Information on the overseas agent and beneficiaries who are established in India.
  • Any other reports such as related to confidential information of the applicant.
  • A collateral amount must be kept by the applicant with the overseas principle for a particular period of time.
  • Once the application is provided with the above documents, the RBI will scrutinise the application.
  • If there is any other information which has to be submitted by the applicant, the RBI will notify the applicant regarding the same.
  • If there are no inconsistencies with the application, the RBI will issue the license to the applicant.
  • With the license, the RBI will issue conditions to the applicant who has to be followed by the applicant.
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What is the difference between FDI and MTSS?

Foreign Direct Investment and Money Transfer Service Schemes include remittances which are sent from abroad. Though under FEMA, both these may be the same, when interpreting these terms they have different meanings.

Foreign Direct investment can be understood as any form of direct or indirect investment which is considered under FEMA. FDI is through a foreign investor or an NRI by subscribing to the shares of an Indian Company.  FDI though it is considered as a remittance, it is majorly considered as an investment in an Indian company.  There are a lot of restrictions when it comes to the operation of FDI. An Indian Company can receive FDI through two routes:

  • Automatic Route- Under the automatic route, there is no requirement of obtaining prior approval for the investment. 100% of investment activities can occur through the automatic route.
  • Government route- This route is also known as the government route. Under this route of foreign direct investment, regulatory approval from the government is required to carry out the investment. If no approval is taken from the government, then the investment would not be permitted through this route.

Money Transfer Service Scheme is an inward remittance. In contrast to FDI, this is a remittance that is formed out of a mutual agreement between the overseas principal and the Indian agency. The Indian agency is an authorised bank which is permitted to receive funds.

Under the MTSS, funds are transferred from the overseas principal to the Indian agent, for specific purposes. These funds can only be utilised for maintenance of family expenses of resident Indians. Apart from this, the maintenance of foreign tourists is also allowed through this.

Hence, both the above terms FDI and MTSS depict a different meaning even though the remittance is from abroad.


The Government of India has brought out the money transfer service scheme. Under this scheme, there is an agreement between the overseas principal and an Indian agent, usually an authorised bank to transfer funds to the beneficiary. In order to become an authorised agent under this scheme, the applicant has to satisfy the criteria for becoming an Indian agent bank. MTSS and FDI are not the same. MTSS only relates to remitting funds to India for a specific use.

Read our article:Money Transfer from Overseas / NRIs to India

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