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If you are sending money to India or receiving it from a foreign nation, a proper understanding of the applicable tax laws is essential. Over the years, several changes have been introduced to the Foreign Exchange Management Act (FEMA) of India and they have often been drastic. With the budget being put into effect just weeks ago, it’s time to take a look through a few key insights that explain the applicable international money transfer tax laws for inward remittance in India.

Rupee Indian India Money Bank Note 500 Rupees

Tax on Money Received: The Variables

When you are sending money to India from the US, Canada, the UK, Australia, New Zealand, or any of the other foreign nations that are greenlit to do so, there are certain important variables. Everything from how the foreign transfer will be taxed to whether the money will be taxed at all are variables that are determined based on:

  1. The purpose of the transfer
  2. The sender
  3. The recipient
  4. The transferred amount

Next, we need to understand how these variables come into play.

Tax Free Foreign Remittance to India

There is a tax free allowance in the FEMA for inward remittance (money sent to India) as a gift. For any international transfer to qualify as a gift, the following criteria must be met:

  • The recipient and the receiver must have verified family ties.
  • The family ties must be acknowledged as such within FEMA’s specifications.
  • The total amount remitted to India must not exceed a total value of US$2,500 or equivalent in one year.
  • The number of transactions must not exceed 30 per year.

Therefore, if you have eligible family members in India, you can use Ria Money Transfer to send money online in the shortest time possible. As for which relationships qualify for the tax free transfers, we have that covered for you next.

Who Qualifies as a Family Member Under FEMA?

The allowance here is wide, but they must still be legally verifiable familial relationships, nonetheless. As per the latest legal dictates, only the following family members and relatives of a sender are eligible to receive tax free inward foreign remittance in India (up to US$2,500 or equivalent).

  • Spouse
  • Siblings
  • Parents
  • Siblings of either or both parents
  • Spouse’s parents
  • Spouse’s siblings
  • Natural and/or legal ascendants or descendants
  • Natural and/or legal ascendants or descendants of the spouse
  • Spouse of all family members mentioned so far

Can Someone Outside Family Receive Tax Free Inward Remittance?

The short answer is yes, you can send money to anyone in India from a foreign nation as a gift and it could still be tax free for them. However, the limit on that is currently set at INR 50,000. Any money received in excess of INR 50,000 as inward foreign remittance within a financial year will be taxed under the concurrent income tax laws of India.

It should be noted that any money received by a family member that exceeds the aforementioned US$2,500 or equivalent will also be taxed as income by the IT department of India. None of the parties would need to pay any taxes at all of course, provided that their total income still does not exceed the tax concession brackets.



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July 2024