Getting An Inheritance Or Gift
In India, the property inherited is fully exempted from gift tax. However, the amount on the sale of the asset is taxable under capital gains. Calculation of capital gains from an inherited property is the sales proceed less than the original cost of purchase of the bequeathed.
It may be short term or long term, depending much on the period for which the property or asset was held.
In the US, there is an inheritance or estate tax levied at the time of inheritance. But this is only levied if the bequeathed or the deceased individual was a US citizen, resident, or Green Cardholder.
NRIs, PIOs, or American Indians will have to report the money that they are bringing in to the US from India. They are to do this by filing Form 3520, an information return and not a tax return. Significant penalties are awaiting those who cannot file the said information return.
Form 3520 is an annual return to report transactions with foreign trusts and receipt of certain foreign gifts. It can be downloaded from here. It must be filed along with the tax return of the NRI, PIO, or American Indians who inherit a property in India. This not only applies to property but also other financial assets such as cash and investments.
It also establishes the basis of the inheritance of the individual. The basis here pertains to the fair market value of the inheritance during the death of the person who bequeathed the property to the individual filing the Form.
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Tax for India residents sending money abroad
How much money can you send from India to the US? Well, in February 2020, the Indian government introduced a new law that would put in new limits for remittances out of India. Because of this law, resident individuals in India can only remit a maximum of USD $250,000 overseas each year. Additionally, any amount remitted above 700,000, which translates to roughly 9,500 USD, will be taxed at 5%.
Receive Money From Abroad In India
There are multiple options to send money to India from abroad. Refer the table below to know the charges for sending money to India from abroad and choose the best suited medium for yourself.
*Money Transfer Operators:Money transfer operators are financial companies engaged in cross border transfer of funds using either their internal system or using their collaborations with other international banking networks. Eg: Transferwise, Western Union.
*SWIFT: Society for Worldwide Inter-bank Financial Telecommunication
*Foreign Currency Demand Drafts: A form of demand draft made in foreign currency at various bank branches located overseas to remit money to India. The equivalent amount in INR will be debited for remittance.
service tax on currency conversion
Note: The receiver will receive the money either in their own/partner bank accounts or as cash from the agents of the respective firms/banks chosen for money transfer.
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Reducing Your Tax Bill
To reduce your tax bill, you must ensure that all funds transferred from overseas have been accurately declared, even if youre not necessarily expecting to have to pay tax on those sums. Working with an accountant is one of the best ways to ensure you are always in-keeping with your countrys tax regulations, but will also give you a more clarity on which foreign transfers should be exempt from tax.
Depending on where you reside, you will likely have to fill out certain forms for your foreign money transfer to be certified as exempt from any tax, so having a professional to help you with these steps is important. In addition to this, it is important to file taxes on time as late payments can result in a hefty fine:
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 isnt 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.
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Tcs On Overseas Education
When money is sent from India to abroad for the purpose of education and if the money being sent is sourced from a student/education loan, then 0.5% of the amount above the Rs 7 lakh limit will be liable to be taxed as TCS.
|TCS % Money Transferred Abroad For Overseas Education|
Simply speaking, this means study abroad remittances will enjoy a reduced TCS of 0.5% if the person sending the money abroad is able to prove that their source of funds is through an education/student loan.
Example: If you remember our 1st example, Rose sends Rs 3 lakh two times to her sisters in Canada. Maintenance money for her elder sister and payment for overseas education for her younger sister.
If we consider the TCS amount applicable for those 2 transactions, it is Rs 0 because the total money sent abroad is Rs 6 lakhs which is still within the limit of Rs 7 lakh.
However, say that as her 3rd transaction, she sends Rs 3 lakh to her younger sister for her education abroad.
In this case, she has used up Rs 9 lakh of her LRS limit.
This is Rs 2 lakh more than the threshold limit of Rs 7 lakh .
If the source of this money sent abroad is through an education/student loan, then as per the TCS on overseas education, the tax amount to be paid by Rose would be
0.5% of Rs 2 lakh = Rs 1,000
However, if the source of this money is from her personal funds and not an education/student loan, then the normal 5% TCS would be applicable.
5% of Rs 2 lakh = Rs 10,000
From 1 Oct5%tax On Foreign Fund Transfer
1 min read.Gireesh Chandra Prasad
- Individuals can remit a maximum of $250,000 abroad every year
- For education-related foreign remittances funded by loans, though, the tax will be just 0.5% for the amount above 7 lakh
Any amount sent abroad to buy foreign tour packages, and every other foreign remittance made above 7 lakh, will attract a tax-collected-at source beginning 1 October unless tax is already deducted at source on that amount.
While the tax on foreign tour packages will be 5% for any amount, for other foreign remittances the tax will kick in only for the amount spent above 7 lakh.
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For education-related foreign remittances funded by loans, though, the tax will be just 0.5% for the amount above 7 lakh, considering many Indian students take loans to pursue education abroad.
Under the Reserve Bank of Indias liberalized remittances scheme, individuals can remit a maximum of $250,000 abroad every year. The provision to collect tax on remittances was introduced in the Finance Act of 2020 subject to riders and notified on 27 March to take effect from 1 October.
Many financial institutions have communicated the applicability of tax-collected-at source on remittances from October to customers.
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Moving A Retirement Account Overseas
Because pension or retirement accounts often have complicated tax limitations regarding early withdrawal or using the account to fund certain investments, you will want to check the local tax laws that apply in both jurisdictions when moving your pension overseas. There may be different limitations if you were hoping to transfer the entire balance of your retirement account versus transferring smaller monthly payments of say, $5,000. If you are receiving regular payments from a pension abroad and want to reduce the costs associated with converting the money to your local account, use OFX to get better exchange rates and lower fees on recurring transfers.
How To Bring Money From India To Usa
According to the RBI guidelines, an individual can transfer a maximum of US$2,50,000 from India to another country within one year. The high transfer limit may give you an idea that the regulations for bringing money to the US are lenient, although in reality, they are not. In fact, the Liberalized Reporting Scheme has been revised by the RBI to tighten the reporting norms for such outward remittances.
For most Indians, sending money to the United States can be a highly complicated task. So, if you are looking for ways to transfer money to America, here are some methods that might prove useful.
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How Will My Recipient In Canada Get The Money
Depending on the provider, your options for delivering money to your loved ones include bank-to-bank transfers, cash pickups and deposits to mobile wallets.
To pick up your transfer in person, your recipient may need to provide a picture ID or a confirmation number to receive your funds. If they own an account with a Canadian bank or money transfer company, they may not be required to provide this information each time you send money.
Taxes On Sending Money From India To Usa Based On The Account Chosen:
NRE: The NRE account can be opened for the purpose of maintaining the income earned outside India with tax free interest on Fixed Deposits. Both the principal amount and interest earned are freely and completely repatriable from India.
NRO: Only the interest earned on NRO Deposits is taxable in India: 30% tax + surcharge + education cess* is deducted at the source of interest earned in India. The repatriation of the money in the account can be done up to a maximum of 1 million USD per financial year.
FCNR: FCNR deposits are tax-free in India. The principal amount as well as the interest are freely and completely repatriable.
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How Much Money Can I Transfer From The Usa To India
There is no money transfer limit on how much you can transfer to India from the US, at least none imposed by the Indian or US governments. However, the specific money transfer or banking service that you are using might impose limits on how much they can accommodate in a single transfer. If youre planning on initiating a large transfer, consider using a limit-free provider such as XE.
How Do I Send Money Overseas Online
Login to digibank ibanking and click on ‘Overseas Transfer’ tab under ‘Pay & transfer’. You need to add new overseas payee by providing bank account details or ‘Start a transfer’ if your payees are already added. You will receive confirmation on successful processing of the payment request on your registered mobile no. and email Id.
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Are There Any Tax Implications On Bringing Money From India To Usa
The United States Government does not levy taxes for transferring money from India to the USA but an NRI should avoid double taxes on the money transacted. This can be done by declaring the source of income in the USA by consulting their Certified Public Accountant or CPA.
This step can help NRIs in avoiding tax implications over there. Also, for an NRI there is a regulation known as DTAA though they dont need to pay double taxes in the foreign country. The DTAA is signed by both the countries and allows the NRI to not pay taxes to both the countries on the same source of income. But if there are different sources like from taxes on investment are different in both the countries. then the remaining amount needs to be paid in the foreign country.
The DTAA has been signed between India and other 85 and above foreign countries including USA, UK, UAE and Saudi Arabia. So, an NRI can impose these schemes to avoid paying taxes.
There are several tax related aspects regarding the repatriation funds from India to USA which are based on different accounts. These are:
1. NRE: This account is opened for the income earned from abroad and has a tax free interest rate up to 7.60%. This is applicable on fixed deposits which are freely repatriable from India.
2. NRO: This type of account is the only one in which taxes are levied. In India, 30% tax and surcharge are deducted from the source of interest. The repatriation can be done only up to USD 1 Million per financial year
Repatriation Or Outward Remittance India
Sending money abroad is known as repatriation or outward remittance. It can be done through your banking channel only either using online services or via demand drafts or cheques. You cannot use the services of money transfer agents.
NRIs will not have a resident Indian bank account. So their earnings in India will be credited to the NRO account. NRIs who do not have plans to come to India for good in the near future will not have much use of the money lying idle in the NRO account.
To help them use it effectively, the Reserve Bank of India allows an amount of up to USD 1 million per financial year from the NRO account to the NRE account. The limit includes the payment of applicable taxes.
If an NRI sells a residential or commercial property, the amount that was brought in India to buy the property can be freely repatriated. The amount would have been brought in via an NRE account. It should be noted that proceeds of the sale of only two properties can be repatriated.
If the NRI brings in money from abroad to repay the home loan amount taken to buy the property, the bank from which he took the loan will allow him to freely repatriate an equivalent amount to what was brought in the country from abroad.
There can be cases where the NRI has made an investment in India using funds that were brought in India from abroad and then sells it. The sales proceeds of such investment can be repatriated freely after paying capital gains tax if applicable.
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What Are The Penalties In India If My Recipient Fails To File
If you dont report a transfer on your taxes in India, you could be charged a 10%, 50% or 200% penalty on the taxes owed, depending on whether it was considered intentional or not.
With so much attention on money entering and leaving India, if you fail to report large sums, dont know you have to report them or dont report them correctly, it will likely be discovered. Make sure to declare any large remittance as income on your general tax return with the Indian Income Tax Department.
To avoid the severe penalties that could come with a failure to report large sums of money into the country, speak with a professional to guarantee that everything complies with the laws of both the US and India.
Is Money Sent From Us To India Taxable
If you send an annual federal gift above $14,000 per person per year, then your amount will be taxable and the sender needs to pay the taxes on the taxable amount. While in case if 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.
If you send $40,000 to 4 different persons then you have not exceeded the gift limit and you do not owe any gift tax on this, as $14,000 is for a single person limit.
Money received in India:
Gifts that you receive from any other person except blood relatives in excess of Rs 50,000 in a year, is considered as your income and will be taxable under ordinary income.
Blood relatives as per Section 2 under the Income Tax Act, 1961 are:
Spouse of the individual.
Brother or sister of the individual.
Brother or sister of the spouse of the individual.
Brother or sister of either of the parents of the individual.
Any lineal ascendant or descendant of the individual.
Any lineal ascendant or descendant of the spouse of the individual.
Spouse of the persons referred to in to .
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Why The Indian Government Came Up With 5% Tcs Rule On Outward Remittance
This move was initiated as an effort against tax avoidance.
In 2015, money transfer abroad under LRS, for purposes such as travel, overseas education, investments for buying property/equity, gift remittance to friends/relatives etc, was about $1.5 billion.
But in 2019, the same came to about $11.34 billion!
The government contends that there are people who send money abroad but are not paying any income tax in India.
For example, they consider that the owner of a local Kirana store or Panipuri joint may be earning a lot of money and spending in overseas travel, education etc. However, since the nature of their work is not really organized, there is a scope for such people to avoid paying income tax.
The government hopes to plug such tax holes by collecting TCS when sending money abroad and allowing people to claim it back when filing IT returns.