How the new India-Singapore payment link will work

Photo: Mint
Photo: Mint


On 14 September, the Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) announced a project to link their fast payment  systems— Unified  Payments  Interface (UPI) and PayNow.  Mint explains  the  implications  of  this  for  your foreign exchange transactions.

On 14 September, the Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) announced a project to link their fast payment systems—Unified  Payments  Interface (UPI) and PayNow. Mint explains  the  implications  of  this  for  your foreign exchange transactions.

What is the new payments link?

The new project will allow users of either country’s payments system to transfer money to the other without on-boarding themselves on the other system. This can significantly cut down on the time taken and the costs of foreign exchange transfers to Singapore. The project is to be operationalized in July 2022. The linkage builds upon the National Payments Corporation of India’s (NPCI’s) partnership with Singapore’s Liquid Group, which may allow BHIM app users to make UPI-QR code-based payments at merchants in North Asia and South-East Asia from early 2022.

How is money transferred  at  present?

Indian residents can send up to $250,000 per year outside India under the Liberalized Remittance Scheme (LRS) of RBI. This is currently done in most banks by filling up lengthy paper forms. The bank provides a foreign exchange quote, which can be quite steep for individuals sending small amounts of money. Thereafter, you can make the transfer through your nearest bank branch. The money is then sent through the SWIFT system. Some banks offer this process through net banking. You can also make payments to foreign merchants through credit cards. However, you cannot transfer money abroad through UPI.

Cost may fall
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Cost may fall

What about the costs involved in forex transfers?

Banks levy hefty charges for transfers of small amounts of foreign exchange. The UPI-Pay Now link has the potential to slash costs and the time taken for such transfers. However, the rupee is a partially convertible currency with limited liquidity in global currency markets. Hence, forex mark ups or spreads levied by banks may not disappear altogether.

What about taxes and reporting?

People remitting money need to fill up the LRS form and mention the reason for remitting the money. They have to also ensure that the amount sent is less than $250,000 per year. In addition, tax collected at source (TCS) of 5% is imposed on LRS transfers above 7 lakh. A single UPI transfer is capped at 1 lakh. TCS will become applicable if the cumulative amount through such transfers crosses 7 lakh per year. In addition, forex charges for small transfers are quite high. It is not clear if they will continue to be so  for  transfers  through  the  new  link.

What are the other innovations at play?

Under RBI’s regulatory sandbox, firms have been allowed to test other forex solutions. Cashfree is also testing the use of UPI for LRS transfers for foreign investment purposes in partnership with fin-techs. The technology would allow you to transfer rupees to a fintech firm and receive corresponding amount in foreign currency in your overseas broking account, after adjusting for fees and conversion charges. Open Financial Technologies is experimenting with a blockchain-based solution to help exporters from India.

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