You can pursue your education at a world-ranked university, land a dream job overseas, or set up your global business. You can also consider travelling the world and fulfil your bucket list. You only need to realise your goals and dreams. Foreign Remittance is the transfer of money between two accounts: foreign to domestic. Due to increased international travel, migration, and investments, foreign remittances have significantly increased.

Furthermore, newer means of making foreign remittances are introduced. One such means of Remittance is online Remittance. It lets you make quick, secure, and hassle-free remittances. Foreign Remittance is of two types: Inward and Outward. Inward Remittance means you receive money from a foreign account. Outward Remittance means you send money to a foreign account.

Taxation implications for Inward Remittance

Typically, Inward Remittances are not taxable. Note that the no taxation clause only applies to Inward Remittances made to provide financial support to family, covering medical expenses, education costs, gifts, and charitable donations. Also, Inward Remittance made to immediate family members is exempted from taxes.

So, no tax is applicable if you are an NRI sending money to India to your family members and their respective linear ascendants or descendants.

Taxation implications for Outward Remittance

In the 2023 Union Budget announcement, Indian Finance Minister Nirmala Sitharaman announced several changes to the taxes associated with Outward Remittance. The Remittance will be taxed at a 20% TCS rate, which was earlier 5%.  This tax increase falls under Liberalised Remittance Scheme. It will be effective from 1 July 2023.

The new tax regime targets high-net-worth people who avoid taxation with foreign remittances.  Following are details of other instances of tax applicability and exemptions.

Tax applicability

A higher TCS is applicable in the following cases:

  • NRIs transferring money to their foreign Bank Account
  • Providing Loans to a relative living in foreign countries
  • Sending gifts to loved ones living in foreign countries
  • Foreign travel expenses
  • Investing in property in a foreign country
  • Buy stocks of a foreign company

Tax applicability exemptions

Following are the other cases in which foreign money remittance does not draw higher taxes:

  • If the Outward Remittance covers educational expenses, the source of funds is a Loan. Transfer amounts up to INR 7 lakh is exempted. Transfer amounts exceeding INR 7 lakh will be taxed at a nominal rate of 0.5%.

 

  • If the Outward Remittance covers educational costs, the source of funds is other sources of income. Transfer amounts above INR 7 lakh will be taxed at a 5% TCS rate.

 

  • If you cannot prove the Outward Remittance is made to cover education costs, the transfer amount gets taxed at a 20% TCS rate.

 

  • Outward Remittances are made to cover medical expenses up to INR 7 lakh, it will be tax-exempt. Transfer amounts exceeding INR 7 lakh will be taxed at a 0.5% TCS rate.