Query – How much tax free money can a person remit or transfer to his/ her parents account in India? Do parents have to pay tax on that money, if I have already paid income tax on that money outside India?
Ans –As of April 2023, an individual can remit up to USD $250,000 per financial year under the Liberalised Remittance Scheme (LRS) for the purposes of gifting, maintenance, and donation to non-resident individuals or entities.
However, it’s important to note that the tax implications of such remittances depend on various factors such as the source and nature of the income, the tax laws in India and the country where the money was earned, and the individual’s tax residency status.
If you have already paid income tax on the money outside India, you may be eligible for a tax credit or exemption under the Double Taxation Avoidance Agreement (DTAA) between India and the country where you earned the income. Additionally, gifts from a close relative (which includes parents) are generally not taxable in India, so your parents may not have to pay tax on the money received as a gift from you. However, it’s advisable to consult a tax expert for personalized advice based on your specific circumstances.
Query – What is Liberalised Remittance Scheme (LRS) for Overseas amount remittance?
Ans – The Liberalized Remittance Scheme (LRS) is a facility provided by the Reserve Bank of India (RBI) that allows Indian residents to remit a certain amount of money outside India for various purposes, such as education, medical treatment, travel, investment in foreign stocks, purchase of property, or maintenance of relatives living abroad.
Under the LRS, a resident individual is allowed to remit up to USD 250,000 per financial year (April-March) for any permissible current or capital account transaction or a combination of both. This limit is inclusive of gifts and donations received during the financial year.
The LRS facility is available to all resident individuals, including minors, as well as Hindu Undivided Families (HUFs). However, it is not available to corporates, partnership firms, LLPs, trusts, or societies.
It is important to note that the LRS facility is subject to certain conditions and guidelines issued by the RBI, and any violation of these guidelines can result in penalties and legal consequences. Therefore, it is advisable to consult a financial expert or a chartered accountant before availing of this facility.
Here are five key features of the Liberalized Remittance Scheme (LRS):
- Permissible Transactions: LRS allows Indian residents to remit up to USD 250,000 per financial year for permissible current and capital account transactions, including but not limited to, education, medical treatment, travel, investment in foreign stocks, purchase of property, or maintenance of relatives living abroad.
- Eligibility: LRS is available to all resident individuals, including minors, as well as Hindu Undivided Families (HUFs). However, it is not available to corporates, partnership firms, LLPs, trusts, or societies.
- Reporting Requirements: The remitter is required to submit a self-declaration form to the authorized dealer bank, stating the purpose of the remittance, along with a valid PAN card, before making any remittance under the LRS. Additionally, the bank is required to report all transactions made under LRS to the RBI.
- Prohibited Transactions: LRS does not permit certain transactions, such as remittances for lottery tickets, banned or illegal items, margin trading, or remittance from India to Nepal or Bhutan. Any violation of these guidelines can result in penalties and legal consequences.
- Repatriation of Funds: The funds remitted under LRS can be repatriated back to India or retained abroad, subject to the foreign exchange regulations of the host country. However, the remitter must ensure that the funds are used only for the purpose for which they were remitted, and any earnings or gains from such funds must be repatriated back to India.
- Query – Do it need to pay any Tax in India for remitting money outside india under LRS?Ans – Remitting money outside India under the Liberalized Remittance Scheme (LRS) does not attract any tax liability in India. However, any income earned from the foreign investment made using the remitted funds may be subject to tax in India. For example, if the remitted funds are used to purchase foreign stocks, any dividends or capital gains earned from these investments may be subject to tax in India, based on the applicable tax laws.Additionally, if the remitted amount exceeds the threshold limit of USD 250,000 per financial year, the remitter is required to report the same to the Income Tax authorities in India, but it does not attract any tax liability.It is important to note that the tax implications may vary depending on the specific nature of the investment or transaction made using the remitted funds. Therefore, it is advisable to consult a financial expert or a chartered accountant for detailed guidance on tax implications related to LRS remittances.
- Query – Can I remit funds for acquisition of shares in a company abroad?
- Ans – Yes, under the Liberalized Remittance Scheme (LRS), Indian residents are allowed to remit funds for the acquisition of shares in a company abroad. However, there are certain conditions and guidelines that need to be followed.Firstly, the company in which the shares are being acquired should not be engaged in any prohibited activities or businesses, such as real estate, agriculture, or trading in TDRs (Transferable Development Rights).Secondly, the investment should comply with the Foreign Exchange Management Act (FEMA) regulations and the guidelines issued by the Reserve Bank of India (RBI) from time to time.
- Thirdly, the total amount of remittance made for acquisition of shares under the LRS should not exceed the annual limit of USD 250,000 per financial year.Lastly, any income earned from the shares acquired using the remitted funds, such as dividends or capital gains, may be subject to tax in India based on the applicable tax laws.It is advisable to consult a financial expert or a Practicing Chartered Accountant in Delhi, India before remitting funds for the acquisition of shares in a company abroad to ensure compliance with all the relevant regulations and guidelines.
- Query – When is the C.A. Certificate required for initiating outward remittance?
Ans – A Chartered Accountant (CA) certificate is required for initiating outward remittance under the Liberalized Remittance Scheme (LRS) when the amount of remittance exceeds USD 250,000 per financial year.As per the RBI guidelines, authorized dealer banks may request a CA certificate for any transaction where the amount of remittance exceeds the LRS limit of USD 250,000. The CA certificate certifies that the remitter has complied with all the applicable laws, regulations, and guidelines related to the remittance, and is required as proof of the legitimacy of the transaction.Additionally, a CA certificate may also be required for certain transactions that are subject to specific regulatory requirements, such as remittances for educational purposes, where the remittance amount exceeds the limit specified by the RBI.It is important to note that the requirement of a CA certificate may vary based on the specific nature of the transaction and the applicable regulations and guidelines. Therefore, it is advisable to consult a financial expert or a chartered accountant for guidance on the requirement of a CA certificate for outward remittance under the LRS. - Query – How much foreign exchange can a person send as gift or donation to a person resident outside India ?Ans – Under the Liberalized Remittance Scheme (LRS), Indian residents can send foreign exchange as a gift or donation to a person resident outside India up to a limit of USD 250,000 per financial year.The LRS allows remittances for various purposes, including gifting and donation. However, there are certain guidelines and restrictions that need to be followed.As per the RBI guidelines, the gift or donation should be made only to a close relative, such as a spouse, parent, sibling, or child, and the person receiving the gift or donation should be a non-resident Indian (NRI) or a person of Indian origin (PIO). Additionally, the gift or donation should be in the form of bank deposits, gift cards, or other permissible financial instruments, and should not be in the form of cash or traveler’s cheques.It is important to note that any income earned from the gifted or donated funds, such as interest or dividends, may be subject to tax in India based on the applicable tax laws. It is advisable to consult a financial expert or a chartered accountant for detailed guidance on tax implications related to gifting or donating funds under the LRS.
- Query – Which are the prohibited transactions under the Foreign Exchange Management Act, 1999?
Ans – The Foreign Exchange Management Act, 1999 (FEMA) is a regulatory framework that governs all foreign exchange transactions in India. There are certain transactions that are prohibited under FEMA. Some of these prohibited transactions are as follows:- Trading in foreign exchange on a margin basis or entering into a contract that is settled by delivery outside India is prohibited under FEMA.Any kind of remittance outside India for lotteries, sweepstakes, or gambling is prohibited under FEMA.FEMA prohibits any remittance made for the purchase of lottery tickets, football pools, and other similar items.Any remittance made for the purchase of banned items such as ivory, weapons, and other illegal goods is prohibited under FEMA.FEMA also prohibits any kind of transaction in foreign exchange with a person who is a citizen of a country that is at war with India or with any enemy country.Any remittance made for margin or margin calls to overseas exchanges, overseas counterparty, or overseas margin trading portals is prohibited.Any transaction that is prohibited by any other law or regulation in India is also prohibited under FEMA.
- Query – Can non-account holders of Indian Bank make an outward remittance through Indian Bank? What are the requirements for making such remittance?
- Ans – Yes, non-account holders of Indian Bank can make an outward remittance through Indian Bank. However, they need to fulfill certain requirements as per the regulations and guidelines of the Reserve Bank of India (RBI) and Indian Bank.
- To make an outward remittance through Indian Bank as a non-account holder, the following requirements need to be fulfilled:
- 1. KYC Compliance: The remitter needs to comply with the Know Your Customer (KYC) norms and submit the required KYC documents to Indian Bank.
- 2. Transaction Purpose: The purpose of the transaction should be permissible under the RBI guidelines and Indian Bank’s policies. The remittance should not be for any prohibited transaction or for activities such as gambling, lottery, and trading in foreign exchange on a margin basis.
- 3. Funds Availability: The remitter needs to ensure that the funds for the outward remittance are available in their account in a permissible currency, and they need to provide the required documents for the source of funds.
- 4. Transaction Limit: The outward remittance should be within the prescribed limit under the Liberalized Remittance Scheme (LRS) of the RBI, which is currently USD 250,000 per financial year.
- 5. Payment Mode: The remitter needs to choose a permissible payment mode for the remittance, such as wire transfer, demand draft, or other permissible payment modes.It is important to note that the specific requirements and procedures for making an outward remittance through Indian Bank as a non-account holder may vary based on the specific nature of the transaction and the applicable regulations and guidelines.
- Therefore, it is advisable to consult a Financial expert or a Practicing Chartered Accountant In Delhi, India for detailed guidance on the requirements for making such remittance.
