If you are settled and working abroad, sending money to your parents in India can be a major source of income and financial help, especially in their retirement age.
In this blog, we will address whether there is any kind of financial burden in the form of tax on you or your family when transferring money to India from the UK, and whether there is a limit to how much you can send.
According to India's Foreign Exchange Management Act (FEMA), money received in India or inward remittances from a family member abroad will not incur any tax on the amount transferred, provided that the amount sent is for the following:
If your parents invest the money, only then the income they receive will be taxable in their hands.
Thus, money sent to parents in India from the UK is not taxable. There are no tax implications in India for you and your parents/family members.
Any of the following family members can receive tax-free money from abroad as per FEMA:
As per the RBI guidelines, the money sent to India is not taxed either if it is for the following reasons:
If you are sending money to your NRE (Non-Resident External) account in India or a bank account of your family, it is tax-free. The NRE account can be used for depositing income earned outside India.
There is no tax on interest earned on NRE Fixed Deposits. The principal amount and interest earned are completely repatriable from India. You can also transfer your funds in the NRE account to your NRO account.
You can open an NRO (Non-Resident Ordinary Account) for maintaining income earned from India, such as income from rent, businesses, pension, etc. Just be aware that a 30% tax plus surcharge and cess will be deducted at the source of interest earned on the NRO account in India.
Tax Treaty Between India and the UK
As an NRI, if you are already paying taxes in the UK, you can avoid paying taxes in India again as per the Double Tax Avoidance Agreement (DTAA).
How Much Money Can Be Sent to India in a Year?
There is no limit to the amount of money you can send your parents to India without incurring any tax liability.
Any gift amount sent to any eligible relatives mentioned in the FEMA rules is considered tax-free. However, if the money is sent to anyone, not on the list, they are considered non-relatives, and it will be taxed as income if the amount received is over Rs 50,000 in a year.
Tax on Money Transfer to India
While there is no limit to how much money you send to your family, your sending country may have its own rules and limits on the maximum amount you can send without incurring any tax on international money transfers to India. Your sending country may start putting a tax on gift money sent after a certain limit.
If you are looking to send money from the UK to India, you can send up to 3,000 GBP as gifts during the fiscal year under the annual exemption.
You can also give tax-free gifts for weddings or civil partnerships up to 1,000 GBP per person, which increases to 5,000 GBP for a child, and 2,500 GBP for a grandchild or great-grandchild.
Tax on Money Transfer From India to Abroad
To transfer money from India to the UK or abroad, you can remit up to $250,000 abroad or the British pound equivalent every year under the RBI's Liberalised Remittances scheme.
However, there will be a 5% tax-collected-at source (TCS) on any amount sent above Rs 7 lakh. TCS will be levied if tax has not already been deducted at source (TDS) on the amount.
A reduced tax rate of 0.5% is applicable for education-related foreign remittances funded by loans above Rs 7 lakh. Foreign tour packages will attract a TCS of 5% for any amount.
The provision to collect tax on remittances outside India was introduced in the Finance Act of 2020, which came into force from 1 October onwards.
Difference Between Rupee Drawing Arrangement (RDA) And Money Transfer Service Scheme (MTSS)?
RDA and MTSS are two ways of receiving inward remittances to India from the UK abroad as per the Reserve Bank of India.
Remittances or money sent home by migrant workers are an important source of income for the families settled back in the migrants' home country. It is also the biggest source of external financing for a country.
India is the world's largest remittance recipient in the world. According to the World Bank, India received $87 billion in 2021. And it is projected to grow 3% in 2022 to USD 89.6 billion.
The best ways to send money from the UK to India should give you a high GBP to INR exchange rate, low transfer fees, and convenience.
Rupee Drawing Arrangement
RDA is usually limited to individuals (restricted to private accounts) only. Money transfers can also be done up to a certain limit for trade purposes. Money transfers for trade under RDA are only for inward remittances to India and can not be used for cross-border money transfers from India to abroad.
There is no limit to how much you can send under RDA as long as you meet the requirements put down by FEMA for non-taxable gifts to India. However, there is an upper limit of Rs 15 lakh on any trade-related transactions if sent via RDA.
Only the Authorized Category I banks that have partnered with approved non-resident exchange houses are allowed to transact via RDA. Non-resident exchange houses are companies and financial institutions authorized by the competent authority in the sending country to exchange foreign currency.
The money sent via RDA has to be remitted to the bank account of the receiver/beneficiary. And no cash remittance is allowed.
Money Transfer Service Scheme
Under MTSS, personal remittances to India, such as remitting money for family maintenance or money sent to foreign tourists visiting India from their families and friends abroad, are permissible. Any other kind of remittances such as donations to charitable trusts, trade-related remittances, remittances for property purchase, investments, or credit to NRE (Non-Residents External Accounts) are not allowed.
There is a limit of $2,500 and a maximum of 30 remittances that a family can receive in a calendar year.
The money transactions under MTSS are done through Foreign Money Transfer Companies known as Overseas Principal, and Indian agents are responsible for distributing the funds to beneficiaries in India at the ongoing currency exchange rates.
Unlike RDA, there is an allowance for cash remittances in MTSS. Amounts up to Rs 50,000 can be paid in cash to a beneficiary in India. Money exceeding this limit can be paid via account payee cheque/demand draft/ payment order, etc., or directly transferred to the beneficiary's bank account.
An exception can be made for a foreign tourist, where he/she can be allowed to receive more than Rs 50,000 in cash via MTSS.
Cost of Money Transfers to India from the UK
The cost of money transfer to India to your parent's bank account will vary depending on several factors such as the transfer amount, the transfer speed, and the platform you are using (banks or money transfer companies or online/offline mode of transfer), among others.
To save money on your next transfer, read more on the cheapest ways to send money to India from the UK to save money on your next transfer.
Currency exchange rates can be considered as a part of the transfer costs. It will decide the amount of money to be received by your recipient after currency conversion and subtracting other charges.
Exchange rates provided by banks or money transfer companies may not be the same as the rates provided on Google, called the real exchange rates or interbank rates. The difference in the rates is one of the ways how these service providers make money.
To get the best deals on rates and fees, compare the best money transfer companies on CompareRemit for GBP to INR today.
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