Transferring large sums to India can be tricky
A move abroad may signal a shift in how you support your family and continue investments. Perhaps you have debt repayments to make as well. This means that you would need to transfer large sums to India. But money transfer to India comes with certain tax implications.
As a non-resident Indian (NRI) who is remitting money, you need to know the tax laws. This can prove helpful when you send money to India from USA and elsewhere.
Sending money to India: Tax implications for the sender
How your remittance will be taxed depends on your country of residence.
India currently has Double Tax Avoidance Agreements with 85 countries. Such bilateral agreements between two countries ensure that the same income does not get taxed twice.
What does this mean for an NRI who currently lives in the USA? It helps you to avoid double taxation on your income in the USA (your country of residence) and in India (your home country). You would pay income tax in the USA as per the taxation laws there. The Indian tax authorities will not levy income tax on the same income.
The account you hold or use may play a role.
For instance, the holder of a Non-Resident External (NRE) account can open a tax-free fixed deposit. But such deposits opened through a Non-Resident Ordinary (NRO) account or through a family member’s account in India will attract tax.
Sometimes, a gift tax may be levied on your remittance.
The gift tax laws vary from country to country. They may apply when transferring large sums of money internationally. In the USA, for example, gift tax is levied if the amount sent to one individual exceeds $15,000 in a financial year.
How India regulates large remittances
What is the international money transfer limit to India? There is none. That’s one less thing to worry about. But your recipient may have to pay income tax on the amount remitted.
Here’s an overview of the tax rules that may affect the recipient:
- Money that is remitted to ‘blood relatives’ is tax-free. There is no cap on the tax-free amount. This benefit is available to relatives such as grandparents, parents, spouses, children, grandchildren, brothers, and sisters.
- Remittance sent as wedding gifts are also free of tax.
- A recipient who is not your blood relation would be liable to pay income tax on amounts exceeding Rs 50,000. The amount over and above the Rs 50,000 limit would be added to the recipient’s personal income. It would be taxed as per the applicable income tax slab.
Not reporting a remittance
Recipients in India who fail to report a remittance could face stiff penalties. Whether the omission was intentional may also affect the penalty amount.
All countries keep an eye on the money leaving and entering the country. So, recipients should play it safe and declare any money that they receive from abroad. This becomes even more important in case of large remittances.
Reporting large transfers from the USA
You may wonder, ‘How much money can I send to India from USA?’ While there is no upper limit on the remittance amount, it is important that you declare large transfers.
This applies particularly to remittances of over $15,000 that are sent to the same individual abroad. The amount would attract gift tax on US soil.
But even aside from that, banks in the USA are mandated to report all transactions of $10,000 and above, along with suspicious transactions of any amount. To be on the safe side, it is best that you declare all your remittances from the USA.
Once you understand the tax implications of a large money transfer to India, assess your actual tax liability and that of the recipient. If you are looking to save on costs, look beyond the usual money transfer options.
Online money transfer services like Axis RemitMoney may have lower charges and better exchange rates than traditional remittance services. So, even accounting for a substantial tax outgo, your overall remittance costs could go down.