Tax on international money transfers with India: Your full guide

India is one of the top countries in the world to be sent money from family members or individuals abroad. But as a recipient in India, it's important to know- what are the tax implications?

Simply, it depends on who is sending the money and for what purpose.

India’s Foreign Exchange Management Act (FEMA), says that if you are receiving money from a family member abroad as a gift or for family support, then the money received in India is tax free 💸

First, let's look at who constitutes as a family member in India. FEMA has that clearly noted that a family member is any of the following:

• Your spouse
• Your brother or sister
• A brother or sister of your spouse
• A brother or sister of your father or mother
• Any lineal ascendant or descendant you have
• Any lineal ascendant or descendants of your spouse
• Any spouses of the previous two

So any gift amount that is sent to any of the people above is considered tax free as a gift.

If money is sent to anyone else not in this list, they are considered non-relatives and the amount will be taxed as income if the amount received is over ₹ 50,000 in a year.¹

Second, on top of a gift from a relative, if you get money in India for any of the following reasons, it is not taxed either:

• You're getting married
• You received an inheritance
• From any fund, foundation, university, educational or medical institution per the RBI guidelines

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Tax for Indian residents sending money abroad

But what about if you are an Indian resident sending money abroad? Per FEMA, you can only send a maximum of $250,000 USD or the relevant currency equivalent per fiscal year.

The money you want to send abroad has to be sent under specific purposes too. The list includes²:

• Foreign travel expenses
• Business travel expenses
• Educational expenses abroad
• Medical treatments
• Gift or donation
• Emigration
• To support close family members abroad

⚠️ As of October 1, 2020, the Reserve Bank of India put in place a change to the Liberalized Remittance Scheme (LRS) on sending money outside India. There will now be a tax of 5% on amounts over ₹ 7,00,000 sent abroad.³

This tax is reduced to .5% for money taken as a loan from a financial institution for educational reasons and sent out of India, but check with a tax professional for your specific educational payment plan.

The table below is a quick summary, but should not be taken as tax advice. Every person’s tax situation is different, so chat with a tax professional to know how sending money to or from India will affect you specifically.

Tax 💰	Sending to India	Sending from India
Sender	Yes, depending on the sending country and the amount	Yes, if above ₹ 7,00,000
Receiver	No, if it meets FEMA guidelines	Depends on the country receiving the funds

Tax for sending money from USA to India

If you’re in the US and want to send money to family members in India as a gift, per the IRS, the amount is excluded from taxes under the Gift Tax for gifts up to $15,000 USD per year. Above $15,000 USD as gifts will trigger a tax event in most cases.⁴

Tax for sending money from UK to India

In the UK, you can send up to £3,000 GBP as gifts during the fiscal year under the annual exemption. In addition, you can also give wedding or civil ceremony gifts of up to £1,000 per person, which increases to £5,000 for a child, and £2,500 for a grandchild or great-grandchild.⁵

Tax on sending money abroad from India

Tax for sending money from India to the USA

If you are an Indian resident, you will get taxed on amounts over ₹ 7,00,000 sent to the US. In addition, you will need to show evidence to prove that the money being sent abroad is for the approved reasons.

The maximum amount you can send abroad as an Indian resident is $250,000 USD annually.

Tax for sending money from India to the UK

If you are sending money from India to the UK, you will have to pay a 5% tax on any amount above ₹ 7,00,000. There is a reduced tax rate for payments taken out as loans for educational purposes.

You will have to ensure that the purpose of your transfer meets FEMA’S criteria for sending money outside India. And you will be capped at the British Pound equivalent of $250,000 USD at the time of sending, annually.⁶

How much money can I send to India in a year

As long as the money sent meets the criteria put down by FEMA for non-taxable gifts to India, stated above, you can send as much as you need.

There also isn’t a cap on how much or how many times family or individuals can receive monetary gifts in India, but your sending country may start putting a tax on gift money sent above a certain limit. Check with your local country tax laws to see what the amount is for tax-free gifting, if at all.

Save with Wise when sending money to India

Sign up for a free Wise account online and see how much time and money you can save when sending money to India. When you’re on the go or at home, Wise makes it simple to send money directly to Indian bank accounts with a touch of a button.

With Wise you will always get the mid-market exchange rate without any mark-ups or hidden fees.

All you have to pay is one low transfer fee, and that's it. And depending on your transaction, it can be in your family’s bank account in India within the hour.

So say goodbye to the overpriced banks and money transfer services that charge you extra for sending money home. And say hello to Wise’s quick, easy and cheap transfers to India.

Sources used for this article:

1. Receiving remittances in India
2. Sending money abroad from India
3. New LRS tax on outward remittances
4. US Gift Taxes
5. UK Gift Taxes
6. Sending money abroad

All sources checked as of 12 October, 2020