With NRIs sending large amounts of money as remittances to India, it is important to understand the tax implications

 With a large migrant population and a strong culture of savings, India is the world's largest recipient of global remittances. For three consecutive years, from 2022 to 2024, India has received more than $ 100 billion in foreign remittances. That is a massive Rs 8.54 lakh crore. In 2024, India set a new record when it received $ 129.4 billion in global remittances. For the benefit of stakeholders, let us take a look at the tax implications on NRIs sending money to India.

Do NRIs have to pay tax on sending money to India?

This will depend on the country from where the NRI sends the money to India. For an NRI sending money from the United States, there is no tax on the remittance amount. However, if the amount is large, it should be reported to the tax authorities in the United States. For example, IRS Form 3520 has to be filled and submitted in case the NRI is gifting funds more than $100,000 to a foreign individual.

India also gets significant contributions from Gulf countries such as the United Arab Emirates, Saudi Arabia, Kuwait, Qatar and Oman. Other major contributors include the United Kingdom, Nepal, Canada and Australia. In most of these countries, NRIs do not have to pay any tax on the amount sent to India.

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However, there are cases when NRIs send money for investment purposes such as stocks, real estate, etc. While the remittance itself is not taxed, the income generated from the investment will be subject to Indian tax (https://newspatrolling.com/hidden-fees-that-are-costing-you-lakhs-on-your-home-loan/) laws. It could include income such as rent, capital gains, etc. NRIs can freely send money to their own NRE (Non-Resident External) or FCNR (Foreign Currency Non-Resident) account in India. Here also, no tax is applicable on the remittance amount. The interest earned on such accounts is also tax-free in India and NRIs can repatriate it easily without paying any tax.

Do recipients of NRI remittances have to pay tax?

While NRIs are not taxed on the amount sent to India, the recipient could be taxed in specific situations. All remittances to India are governed as per the Foreign Exchange Management Act (FEMA). Every time a remittance is sent to India, the NRI should submit the purpose of the remittance/transfer. The NRI can mention various purposes such as medical care for family members, financial support for family, education, travel expenses, investment, gifts, etc. As per FEMA, remittance cannot be sent to India for things like online gaming and other speculative or illegal activities.

If an NRI is sending money for family needs, the recipient will not have to pay any taxes. However, if the money is sent as a gift to a person who is not a relative, it will be taxed. This applies in cases where the amount is more than Rs 50,000. In such cases, the recipient will have to pay tax according to the Section 56(2)(x) of the Income Tax Act, 1961.

As is evident from above, the taxation rules are pretty relaxed for NRIs in India. In most cases, NRIs do not have to pay any tax on money sent to India. It explains why NRIs send millions of dollars to India every month.