Remittance is a major external component of any country's economy, mainly for the developing nation like India which lacking the resources to reach the employment equilibrium and which average wage rate is lower to remittance sending countries. India with 71 billion$ became the highest country by surpassing the China with 64 billion$ in terms of remittance inflows according to latest estimates released by World Bank report for the year 2014. But the share of remittance as percentage of GDP is higher in India (3.7%) in compare to China (0.6%) that reflects the more dependency of domestic economy on foreign remittance.

Remittance inflows in India are mainly classified into the five regions of the World, Gulf countries and North America are the major sending locations. Break up of NRI remittance in last seven years are shown in given table which is being analysed with the help of RBI data:

In recent years, swift of Indian remittance is tending towards Gulf in spite of their localization of labor market. Saudi Arabia is most attracted destination among the Gulf for Indian labor migration. Presently, Kingdom is the single largest country to have the highest number of Indian citizens in a foreign country while Indians are the largest expatriate community in Saudi Arabia. It is being estimated that 14 Million NRIs reside in Saudi Arabia (19% of total migrants in Saudi Arabia and 12% of total Indian migrants) and out flowing the highest remittance around 8381 million US$ with 30% share in overall outflow of Saudi Arabia and 12% of India’s total remittance inflows as per the estimate for the year 2012. Most of Indians are associated as helpers in basic engineering (43.36%), services sector (35.74%), technocrats (6.34%), industrial & chemical operators (4.33%) and salesmen (4.09%). According to RBI survey conducted to know the important dimensions of inward remittances from overseas Indians, most of Indian migrants to Saudi Arabia are the less qualified and educated below the secondary level. Due to large chunk of unskilled or semi-skilled laborer, remittance per Indian migrant is much lower in Saudi Arabia 5769 US$ in compare to other GCC and European countries. Qatar with 9151 US$ pay per Indian migrant is on top among all countries while Kuwait, UAE and Oman pay with 7496, 7175, 5837 US$ respectively are above to Saudi Arabia.

In GCC countries, Indian are mainly belongs to the poor background who are migrating to Gulf for the fulfilment of necessities of their families. Instead of facilitating the support through welfare schemes, Indian government has initiated levy of service tax 12.36% on the Indian bank or other entity acting as an agent to money transfer service operator (MTSO) in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. In performing this service, the Indian Bank/entity facilitates the provision of Money transfer Service by the MTSO to a beneficiary in India. It is argued that agent receives commission or fee for their services that makes them eligible for service tax. But the ultimate payee would be the migrant or receiving family person, which finally increase the transferring charges and reduce the value of money for migrant. While no service tax is payable per se on the amount of foreign currency remitted to India from overseas without taking the services of MTSO.

Remittance is also a kind of export transferring the external currency into India that caused to the improvement in balance of payment. Under the invisible category transaction, private transfer receipts are 30% of total net receipts. Government provides the incentives for inflowing of external currencies in terms of export but for NRI remittances, it is unjustifiable levying the taxes instead of incentives. Through comparing between India and Pakistan about the cost of sending money from Saudi Arabia, cost of India is much higher. Average cost of sending money from Saudi Arabia to India is 6.11% of total remittance while it is only 1.97% for Pakistan in quarter second of 2014 as per the World Bank estimates for remittance prices. In the just released estimates, cost has been declined notably due to international pressure from 6.11 to 3.33 for sending the money from Saudi Arabia to India.

While India is raising the issue of cost reducing in remittance at international level, especially among the G 20 countries summit but it is not taking serious steps to ensure the maximum money transfer to the remittance recipient households. It was pledged during last discussion that reducing the cost of transferring remittances is just one practical example of where collective G20 effort can make a big difference to the poorest and most vulnerable. Presently in case of transfer of funds from the Gulf countries that are remitted mainly through exchange houses, conversion into rupees is made at the point of origin and the recipient in India does not bear any cost of converting foreign exchange into rupee. Introducing of such kind of service tax on remittance services will increase the cost of remittance domestically and reduce the value of migrant money. Gulf migrants due to their poor economically background would be mainly affected from this tax. Indian government along with the remittance sending countries should ensure the low cost transfer of money to the migrant family on both the sides, internationally and domestically. In absence of such provisions, there would be widely demotivation among the migrant and would cause to scale down of inward remittance and productivity of labor.