As international money transfers become increasingly common, both Non-Resident Indians (NRIs) and residents need to understand the concept of remittance tax. Whether you’re sending money to family in India, funding a child’s education abroad, or investing in foreign assets, it's essential to know how these remittances are treated from a taxation point of view.
This blog breaks down the concept of remittance tax, its implications in India and the U.S., and how you can stay compliant while sending or receiving money across borders.
What Is Remittance Tax?
Remittance tax refers to the tax implications associated with international money transfers. It doesn’t necessarily mean that every remittance is taxed, but certain transfers can trigger tax liabilities or reporting requirements depending on:
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The amount remitted
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The purpose of the transfer
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The source or destination country
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The residency status of the sender or receiver
While the act of sending or receiving money isn’t always taxed directly, tax regulations often kick in when the transferred money is categorized as income, gift, or investment.
India’s Approach to Remittance Tax
In India, the Liberalised Remittance Scheme (LRS) allows residents to remit up to USD 250,000 per financial year for approved purposes like education, travel, gifts, and investments abroad.
Since October 2020, the Indian government has introduced Tax Collected at Source (TCS) on foreign remittances:
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5% TCS on remittances above ₹7 lakh for most purposes
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0.5% TCS on educational remittances funded by loans
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20% TCS on foreign tour packages (recent revision)
This TCS is adjustable while filing income tax returns, but it increases upfront compliance and documentation requirements. NRIs sending money to India are usually not taxed on the remittance, but the recipient may need to declare it, especially if it qualifies as income or gift.
Remittance Tax in the United States
In the U.S., sending or receiving money isn’t taxed directly, but reporting obligations are significant. Here’s how it works:
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Gifts above $18,000 (2024 limit) must be reported by the sender using IRS Form 709.
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Foreign gifts over $100,000 received by a U.S. resident must be reported on IRS Form 3520.
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Transfers over $10,000 may be reported to the Financial Crimes Enforcement Network (FinCEN) to ensure anti-money laundering compliance.
So, while there’s no explicit “remittance tax,” failing to report large transfers can lead to penalties, audits, and legal complications.
Inward Remittances: Are They Tax-Free?
In India, inward remittances are generally not taxed, especially when received from family members. However, if the amount exceeds ₹50,000 and comes from a non-relative, it may be taxed as income from other sources.
NRIs should also be cautious when sending large gifts to relatives in India. To avoid taxation or scrutiny, it’s best to document these transfers clearly as gifts, preferably with a signed declaration.
How to Stay Compliant
To avoid legal trouble or double taxation, follow these tips:
✅ Keep clear records of remittances and their purpose
✅ Use formal banking or licensed money transfer services
✅ Know the thresholds for TCS, gift tax, and reporting in your country
✅ Consult tax advisors familiar with cross-border compliance
✅ Be honest and transparent with tax filings, especially for large transfers
Final Word
With globalization, remittance has become a key aspect of financial planning for NRIs and Indian residents alike. While remittance tax may not be a direct levy in all cases, it is deeply intertwined with gift rules, income classification, and international tax treaties.
Understanding your country’s tax laws and adhering to them ensures peace of mind, financial security, and full compliance.
Need professional help with remittance tax or NRI financial compliance? Get in touch with Dinesh Aarjav & Associates, your trusted partner in NRI taxation and cross-border finance solutions.