Tax Implications on Money Transfers From the USA to India

India is a leading remittance recipient in the world and received more than USD 12 billion in 2019 alone from the US. Hence, it is evident that people living and working in the USA remit a considerable chunk of money every year. For example, non-resident Indians who are working abroad may need to send money to repay their Loans in India or send money to support their family back in India.

So, if you are someone who wants to proceed with a money transfer from USA to India, you must know the tax implications.

Transaction limit

Currently, there is no limit on the amount that you transfer from the US to India each year. Governments, typically, welcome money transfers from foreign countries since it bolsters their economy. Hence, India is no exception and has not imposed any limits on the corpus that can be received from abroad. Similarly, in the USA, you can send the unlimited amount to India.

Tax implications for senders

India has signed a Double Taxation Avoidance Agreement with the USA. Hence, if you have paid tax on the income you have earned in the US, you need not pay tax on the money when transferring it to India. Although there is no upper limit on any money transfer to India from the USA, you can only avail of up to USD 14,000 in tax-free transactions every year. This amount is exempt from being taxed under the Gift Tax policy of the US.

This limit is given on a per-person basis. That is, if you send USD 14,000 each to several persons, you need not pay any Gift Tax. Depending on your service provider, you may also need to pay a service tax and other transaction charges for your transfers. So, make sure you choose a provider with the least cost and no hidden charges.

If you want preferential exchange rates, fast credit, and no service charges, you can remit money to a Non-Resident External or NRE Account with your preferred bank.

Tax implications for receivers

There are no tax implications for the receiver when sending money to India if they are the sender’s close relative. The remittance is treated as a tax-free gift. However, only the following persons are treated as close relatives:

Siblings of the senderSpouse of the senderSister or brother of the spouse of the senderSister or brother of either parent of the senderAny lineal descendent or ascendant of the senderAny lineal descendent or ascendant of the spouse of the sender

If you receive a money transfer from a friend in the US or an individual who is not related to you, you get taxed on the amount beyond a certain limit.