Do I Have To Pay Tax On Money Transferred From Overseas To India?

As per the statistics, India is the world’s leading receiver of remittances claiming more than 12% of the world’s remittances and contributes 4% or more towards the nation’s GDP. As per the Ministry of Overseas Indian Affairs (MOIA), the remittance is received from approximately 35 million members of Indian Overseas.

Tax collected from the citizens of India lays the foundation of an economy and India being world’s largest developing economy is no exception. Taxation and its policy are governed by the Indian Income Tax Act 1961 and its section NRI taxation is applicable to those who are earning outside India and the rules and perks allowed to them i.e. to the non-residents of India are quite different from those applicable to resident Indians.

An NRI or Non-Resident Indian is an individual who is staying abroad either for employment or for carrying out a business or vocation and has no timeline to return to his or her country. NRIs also include those who are either posted in United Nation Organizations and officials deputed abroad and officials deputed abroad by Central or State governments and public sector undertakings or those who are on temporary assignments and there are three main categories of NRIs, such as:

1. Indian citizens who stay abroad for employment or for conducting a business or vocation for an indefinite period.
2. Indian citizens who are on working abroad on certain assignments in conjunction with foreign government agencies such as United Nations Organization and its affiliates, International Monetary Fund (IMF), World Bank etc.
3. Officials of Central and State Government and Public Sector Undertakings who are deputed abroad on temporary assignments such as Indian diplomat mission etc.

NRIs who are staying abroad whether on a temporary or permanent status send or transfer money to their family, friends or relatives staying in India and is referred as remittance to India. In other words, remittance to India means sending money to someone or to a person who is at a distance in India by another person from outside India and as per Indian Income Tax Act 1961, any and all income received in India is taxable irrespective of the taxpayer’s present residential status. However there are multiple factors which are considered before levying tax on the money transferred from the overseas, such as:

1. Your present residential status
2. The amount of money you are transferring
3. Tax laws of both the countries i.e. from where the money is being transferred and to the country it is being transferred to.
4. The source of the funds i.e. if it is a inheritance, gift or proceeds from the sales of a home etc.

Your Present Residential Status

You will be considered as a Non-Resident Indian if you don’t meet any of the below mentioned conditions:

1. If you are in India for a period of at least 6 months i.e. for exact 182 days during the present financial year.
2. If you are in India for 2 months i.e. 60 days for the previous financial year and have lived for one complete year in the last 4 years.

And since tax applicable on your income as a NRI is dependent on your residential status for the present financial year and if it is resident then your global or overseas income would be taxable as the Income Tax Act 1961. Income such as salary received in India or salary for service provided in India or income from a house property situated in India or capital gains on transfer of asset situated in India or income from fixed deposits or interest on savings bank account are considered as income earned in India and are thus taxable however income which is earned outside India is not taxable in India. So, if you are remitting the money or income which is earned in India by you then you have to abide by the Indian tax policy and a working NRI wanting to transfer his or her money to his folks in India, can do without paying any tax on it in India because he or she has already paid on the income as per the tax rules of his resident country

In case the income or remittance you are making to your folks in India, then as per Section 56(2) of the Income Tax Act, if the recipient is your blood relative i.e. spouse, parents, children or grand-children, siblings or in-laws, then they don’t have to pay tax on any amount being transferred to their account. Also no tax is applicable on any money sent as part of an inheritance or a wedding gift. However, if you are remitting money to someone who is not related to you in any way, then any amount over Rs 50,000 has to be declared as income and is thus taxable. It is important to remember here that the limit of RS 50,000 is not for a single transaction and is rather applicable for the entire financial year.

As a NRI, you must consider few important points before you go ahead with the transfer such as:

• Why you want to transfer the foreign currency to India? – Motive holds utmost importance because if it is clear, it will open more options i.e. if you are transferring money for investment purpose or saving or just as an inheritance or gift. If you know the reason why you are transferring the money, you can avail better options in order to save yourself and the income from the tax, for example, if you are transferring money for the investment purpose, you can do so using Xoom or Transfast or by opening an NRE saving account. Moreover, any interest earned on NRE account is not taxable. For example, if you are a NRI and wants to transfer money to your wife in India, it is better to open fixed deposit from the funds available in your NRE saving account rather than remitting the money to your spouse’s saving account, because in the former case, no tax will be levied on the interest earned in NRE fixed deposit however in the later case, the interest earned on the deposits or the remittance is eligible for the taxes and TDS will be deducted by the bank on the same. However, if you have received a lofty inheritance or have sold a property overseas and want to transfer the received money to India, you might have to pay certain applicable taxes on it such as inheritance tax, gift tax, capital gains tax etc and when and if you have paid the applicable tax in your residing country you may not have to pay the tax again in India because most of the countries have double taxation treaties to protect their citizens from paying tax twice. Basically Double tax treaties provide that the country from which the income is generated has the right to tax it and India has entered into double tax treaties with number of countries including USA, UK, Canada, Germany, Australia which are quite favorite for the Indian diaspora. However, even in that case you may be asked to furnish the required documents or certain declarations need to be made.

Thus the motive as in why you want to transfer the foreign currency to India is very important and needs to be clear before you proceed to do so.

• Who holds the saving accounts you want to transfer the money to? – Apart from the motive of your transfer, the person you are transferring money to also plays a vital role in deciding if tax will be applicable or not. In other words, if you want to transfer the money to your parents or spouse or to any of your blood relative account for their personal expenses, then you can do so directly to their savings account without attracting any tax on it and a blood or close relative would include any of the following:
  • Your spouse
  • Your brother or sister
  • Brother or sister of your spouse
  • Brother or sister of either of your parents
  • Any lineal ascendant or descendant of the individuals
  • Any lineal ascendant or descendant of your spouse

As mentioned above, India is the world’s largest remittance receipt and has record of more than 10 billion dollars sent from the US to India alone, Us being one of the popular destinations of Indian dispora. And although there is no such limit on the amount of money one can send from USA to India, one has to be within limit of US $14,000 per person per year in order to have tax free transactions and in case the amount remitted to India is more than US $14,000, then you are liable pay gift taxes as applicable.

Indian government keeps a vigilant eye on the money entering India and with so much of attention on money that is entering or leaving India, you must be careful and report large sums as income on your general tax return with the Income Tax Department.