Understanding Tax On Remittances To and From India

What are the tax implications on remittances to and from India? Know the tax guidelines in this post.

Tax on international money transfers with India

India is one of the top countries that receive money from families and friends living abroad. However, each transaction is sent after it has been taxed. It depends on the purpose of the transfer and who is making the transfer. As per India's Foreign Exchange Management Act (FEMA), money received from a family member as a gift or financial help, the amount received is not taxed in India.

Let us see who is considered a member of the family:

  • Your spouse 
  • Siblings
  • Parents
  • Siblings of your parents 
  • Siblings of your spouse 
  • Your lineal ascendant/descendant 
  • Lineal ascendant/descendant of your spouse

So, the gifts sent by the above-mentioned people or family members are considered tax-free gifts. If you receive something that is not sent by these people, it will be taxed in the country. The income needs to be more than USD 50,000 to be eligible for taxable income. If you receive money for the below-mentioned reasons, the amount of income will not be taxed:

  • Inheritance 
  • A marriage gift 
  • Receiving money from the fund, medical institution, foundation, or university according to the RBI guidelines. 

Tax for Indian residents sending money abroad

If you are sending money to foreign countries as an Indian resident, the amount will be taxed as per the regulations and guidelines. The maximum amount is USD 250,000. The money must be sent under specific requirements, and they are listed as follows:

  • Medical treatments 
  • Travel expenses in foreign countries
  • Gift
  • Donations
  • Emigration 
  • Business expenses and travel costs
  • Education cost abroad
  • To help a family member

The RBI has put a new alteration to the Liberalized Remittance Scheme (LRS) as of October 1, 2020. The tax will be 5% on the amount over INR 7,00,000. If you are taking a loan for educational reasons from any financial institution and are sending it out of India, the tax is 0.5%. The tax situation depends on the individual. So, take advice from a tax consultant or professional to know the tax rates and how they can affect you if you send money outside India. 

Taxes on money received in India from the USA

If you want to send money to your family members from the USA as a gift, then the amount will be tax-free up to USD 15,000 per year as per the IRS. If the amount of gifts exceeds USD 15,000, the amount will be subject to taxes. The taxes will be different for different products. If the gift is antique, rare, or has unique qualities, the source will be identified to check the authenticity. 

Taxes on money received in India from the UK

If you want to send money to your family members from the UK, then the amount will be tax-free up to GBP 3,000 during the financial year. That is the exemption amount. You can send a wedding gift or birthday gift up to GBP 1,000 per person. If you're sending a gift to a child, the limit is GBP 5,000, and for a grandchild or related blood relative, the maximum limit is GBP 2,500. 

Tax-free income from India to the USA

An Indian Resident can send INR 7,00,000 to the US tax-free. The amount over 7,00,000 is subject to tax. You need to give proof that you are sending money to the US for approved reasons. Annually, you can send USD 250,000 as an Indian resident to the US. 

Tax-free income from India to the UK

The maximum limit for sending money to the UK from India is INR 7,00,000 tax-free. You will be charged a 5% tax on an amount of more than INR 7,00,000. If you are sending money for education purposes, tax is reduced. You will have to meet the requirements of FEMA's criteria to ensure the reason for the transfer of money in the UK. The maximum limit for transfer without taxes is GBP 1,76,215. 

Money Limitations from India: 

The limits for sending money to the US and the UK are mentioned above. As long, you comply with FEMA's (Foreign Exchange Management Act) guidelines, you can send money as per your needs. There is no such value on the maximum limit a family or an individual can receive gifts in monetary form. However, the amount will be subject to tax if it exceeds the gift limit of INR 7,00,000. The TCS on remittances is 5% once it exceeds the maximum limit. You can check your state laws or country's tax laws to see the exact amount.

Thank you for reading. If you enjoyed this article, please share it via WhatsApp.

Keep in the loop

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Monthly Updates  •   Great Articles  •  No Spam Ever