Transfer money from India to the USA: tax implications

Planning on moving money from India to the USA? You may be wondering if you’ll need to report the transfer, or pay any taxes on it.

This guide is a great starting point to help you figure out your obligations — and of course, if you’re not completely sure about your duties, you’ll also be able to talk to a professional tax adviser to double-check.

To help you make the most of your money in both India and the US, we’ll also introduce Wise as a smart way to move your money around the world with lower fees and a better exchange rate. Let’s dive in!

📑 Table of Contents
What are the tax implications of sending money from India to the US? Tax implications on selling property in India Taxes to consider when getting an inheritance or gift in India Taxes on investments in financial instruments What are the tax implications of sending money from the US to India? Send money from India with a quick and secure Wise transfer

Information detailing US taxation has been written in collaboration with Katelynn Minott — Managing CPA and CEO at Bright!Tax US Expat Tax Services.

What are the tax implications of sending money from India to the US?

Whether or not you have any tax obligations in either India or the US when moving money between the two will depend on the source of the funds, the reason for the transfer, and the amount.

The tax you pay may also vary depending on your citizenship status. Your tax residency status also matters as this decides where you pay tax on worldwide income.

The good news, though, is that India and the USA have an agreement in place, which helps avoid double taxation on the same income. We’ll look at a couple of common scenarios when you may need to move money from India to the US, next.

Tax implications on selling property in India

If you’re selling a property in India you may be liable for capital gains tax in India. This is usually set at 20% for long-term capital gains which have been accrued on an asset owned for 3 years or more.

If you’re selling a property you’ve owned for a shorter period of time, you may still be liable for short-term capital gains tax, but this is calculated slightly differently.

Once you’ve paid tax on the property sale in India, the double taxation agreement and a provision on the US tax return called the Foreign Tax Credit should mean you don’t then pay tax a second time as a result of the sale.

However, it’s worth noting your bank may require you to justify the source of high-value transfers received in the US — and in the event that you receive the funds as a gift or inheritance from abroad, different US tax reporting rules may apply.

You may also be required to complete Form 15CA or Form 15CB prior to moving your money from India, to confirm any relevant tax has already been paid on the funds¹.

Read more about selling property in India and bringing money to the US

Taxes to consider when getting an inheritance or gift in India

Inheritance tax does not apply in India — however, if you receive a gift from someone other than a close family member you may need to pay tax on it at prevailing rates. This shall be done along your tax return if you’re a US citizen or executor of estates of US descendants.

In case someone sends you money from India to the US as a gift or inheritance you might need to report it to the IRS as a foreign gift on Form 3520 — this is done with your US tax return. Whether or not this is necessary depends largely on the value of the transfer².

Taxes on investments in financial instruments

If you make money from financial instruments in India, the chances are that you’ll be liable for some tax. However, exactly what you need to pay will depend on the type of investments you have, and how long you’ve held them.

You’re likely to find that sales of financial instruments in India fall under the capital gains rules, with tax levels varying depending on whether you had held the investment for 3+ years or less.

Once you’ve paid relevant taxes in India, you should not need to pay tax again on the same income in the US, thanks to double taxation agreements. To make sure you’re compliant with the law in both countries, reach out to a trusted tax advisor.

What are the tax implications of sending money from the US to India?

If you’re sending money from the US to India, in most cases you’ll need to pay any relevant taxes in the US prior to moving the money. Double taxation agreements would then ensure that tax is not paid a second time on the same funds.

One exception (which is likely to arise) is if you’re sending money to India as a gift. In this case, the recipient in India may need to report the gift and pay tax on it at the prevailing rate.

The details of how gift tax is applied will depend on the value of the transfer, whether or not the gift giver is a family member and the sender and recipient’s residency status.

Send money from India with a quick and secure Wise transfer

If you’re making a payment from India to the US — or if you need to send money from the US to India — you could save money with Wise.

Wise international money transfers are fast, safe, and use the real mid-market exchange rate with no markups. That means you could save significantly compared to sending money with your regular bank.

Set up your Wise transfer easily online, and have it delivered right into your preferred USD account for convenience. No hassle, no hidden fees, just quick low-cost international transfers that cost less.

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Tax matters are seldom straightforward, so getting some professional advice can help set your mind at rest if you’re sending money from India to the USA.

In most cases double taxation treaties should mean that you never need to pay tax twice on the same sum of money — however, there may still be reporting requirements that you need to be aware of.

Once you’ve got everything sorted, remember to check out Wise as a cheap and fast way to move your money from India to the US — or anywhere else in the world.

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This article has been written in collaboration with Katelynn Minott, the CEO and Managing CPA at Bright!Tax US Expat Tax Services. Katelynn is the CEO at Bright!Tax US Expat Tax Services, and has helped thousands of American expats become compliant with their US filing obligations over the last 10 years. She spent time as an expat herself, residing in both Chile and Brazil. She was recognized by CPA Practice Advisor's with a 40 under 40 award in 2021 and is a regular contributor to various media outlets including CNBC, Forbes, and Fast Company.

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Sources:

1. HDFC Bank — NRI account types
2. Cleartax India — Form 15CA/CB
3. IRS — Gifts from foreign persons
4. Economic Times — NRI gift tax

Sources checked on 07.12.2022