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Tax Implications When Making an International Money Transfer

Updated on Apr 09, 2020
Money Transfer & Tax Implications

What are the Tax Implications for Sending Money from USA to India?

The annual federal gift tax exclusion allows you to give away up to $14,000 in 2015 to as many people as you wish without those gifts counting against your lifetime exemption (After 2015, the $14,000 exclusion may be increased for inflation). In case you are married, you and your spouse can elect to split the gift. So, you can potentially send $28,000, per person, in a year.

Thus, under the law if you sent $40,000 to 4 different persons, that is, if you gave $10,000 each, the amount of gift will be below the annual exclusion threshold and you will not owe any gift tax on this.

Receiving Money in India

Gifts you receive from persons other than your blood relatives* in excess of Rupees 50,000, in a year, is considered as your income and it is taxable as ordinary income. Thus tax on taxable gifts is to be paid by the receiver of the gift.

*A close or blood relative would include any of the following:

  1. Spouse of the individual
  2. Brother or sister of the individual
  3. Brother or sister of the spouse of the individual
  4. Brother or sister of either of the parents of the individual
  5. Any lineal ascendant or descendant of the individuals
  6. Any lineal ascendant or descendant of spouse of the individuals

Related Article: Are You Becoming An an NRI? Here are the steps you need to take first

What are the Tax Implications for Sending Money from India to USA?

Under FEM (CAT) Amendment Rules, 2015, Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 250,000 only on financial year (April – March) basis.

  1. Private visits to any country (except Nepal and Bhutan)
  2. Gift or donation.
  3. Going abroad for employment
  4. Emigration
  5. Maintenance of close relatives abroad
  6. Travel for business, or attending a conference or specialized training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
  7. Expenses in connection with medical treatment abroad
  8. Studies abroad
  9. Any other current account transaction

Amounts exceeding this limit require prior permission from RBI. No separate taxes need to be paid by you for this as these funds are after payment of applicable taxes.

How Much Money can One Send from USA to India?

There is no limit on sending money from USA to India, provided you pay the required taxes. But, there is a limit of US $14,000 per person per year for gift tax free transactions. Any amount sent above US $14,000 per person per year, the sender is responsible for paying the gift taxes. Note that there is no income tax deduction for the amount you send.

Related Article: More About Taxes in the US

How to Repatriate Money from Sale of Property in India?

To be able to transfer money, received in India from the sale of your property, it is important that the payment for the property is accepted through legal banking channels. Documentary proof showing source of money will be required when transferring money abroad. In order to transfer the money it must first be deposited in an NRO bank account. Remember, your CA has to verify that taxes have been paid on 'Form 15CB'

NRIs are allowed to repatriate an amount up to USD one million, per financial year, from their NRO account. Such transfers are allowed, subject to tax compliance. The limit of USD 1 million includes sale proceeds of immovable properties held by NRIs/PIOs.

In the United States, you are required to report this capital gains transaction on your Federal Income Tax Return and pay the applicable capital gains tax.

How Much Money can One Send from India to USA?

Under the Liberalised Remittance Scheme (LRS), all resident individuals, including minors, are allowed to freely remit up to USD 250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian.

Are There Any Restrictions on the Frequency of the Remittance from India?

There are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 250,000.

Who is Responsible for Paying Taxes While Sending Money to India?

As per federal tax laws, the US person sending money is responsible for paying taxes

Disclaimer: The information presented here is for general informational purposes only and does not constitute tax advice. Please consult your CA, CPA, tax-expert or tax attorney for specific tax advice and inquiries. Visit IRS Website for US tax information. Visit RBI Website for Reserve Bank of India and Income Tax Department Website for Indian regulations.
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