The Ultimate Guide to Tax on International Money Transfers in India. Many Indians currently live abroad. No wonder it’s one of the world’s top recipients of money from foreign sources, as individuals send money back to their families at home. If you are one of the lucky recipients of this largesse, one thing you need to be aware of is the tax code that governs these types of transactions.
Tax Ramifications of Money Received from Abroad
The taxes owed on money sent from overseas to India depends on the relationship of the sender to the recipient as well as the purpose of the money.
According to India’s Foreign Exchange Management Act (FEMA), if the person sending you money is a member of your family and if the money is meant to be a gift or to help support the family, then the money is tax free.
The definition of a family member according to FEMA is as follows:
- Your spouse
- Your sibling
- Your spouse’s sibling
- Siblings of your parents
- Your descendants or ascendants
- Your spouse’s descendants or ascendants
- Any spouse of you or your spouse’s descendants or ascendants
You can send a gift in any amount to the people mentioned above, and it will be considered a tax-free gift to that person. If you send money to anyone who is not on that list, then they will be taxed for any amount over 50,000 rupees a year.
Additional Exceptions to Income Tax
Additionally, if you receive money in India from overseas for one of the following reasons, you will also not be taxed:
- You are getting married
- You have received an inheritance
- You have received funding from a qualifying institution such as a medical school or a foundation.
Tax Law for Indian Residents Sending Funds
According to FEMA, you can send up to 700,000 rupees abroad per fiscal year, as long as it is for the following purposes:
- Travel expenses, including business travel
- Educational expenses
- Medical purposes
- A charitable donation
- Emigration expenses
- To support a close family member such as a child
Any sum over 700,000 rupees will be charged a 5% tax. However, this tax goes down to just 0.5% for educational loans from an Indian financial institution.
American and British Taxes
Two of the countries that most often send money to India are the U.S. and U.K.
If you live in America, the IRS will allow you to exclude gifts up to 15,000 dollars per year from taxes. If you live in Great Britain, up to 3,000 pounds may be sent as gifts without any taxes being paid. Additionally, you are allowed to give wedding gifts of varying amounts without paying taxes, with there being no tax for up to 5,000 pounds if you send money to your child.
Using Western Union to Send Money
Western Union has been around since 1851 and has facilitated money transfers since 1871. Currently, millions of people in over 200 countries use the service to send money internationally. In addition to going to a Western Union office, users can also process their international money transfer online or use the handy phone app. Western Union is an easy, quick, and reliable way to make sure your money gets to your relatives.