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There are a lot of loopholes when it comes to RBI guidelines for foreign remittances.
This issue becomes bigger by the fact that the union budget changes its taxation rules every year.
Businesses ultimately suffer the most.
To avoid this for your business, it might be important for you to understand all the taxes and tax exemptions that come under the RBI guidelines for foreign remittance.
What are they?
Let’s find out!
RBI regulations for inbound remittances differ from outbound transfers. India, a major recipient of remittances, sees major contributions from NRIs investing in businesses and real estate, as well as those supporting families abroad.
First and foremost, under the RBI guidelines for foreign remittances, the RBI offers two methods for foreign remittances: the Rupee Drawing Arrangement (RDA) and the Money Transfer Service Scheme (MTSS) for overseas money transfers.
While RDA has no specific cap, MTSS allows 30 transfers annually, each capped at USD 2,500. Transactions must go through authorized dealer banks, and recipients need a Foreign Inward Remittance Certificate (FIRC) for authenticity.
The Reserve Bank of India (RBI) oversees outward remittances through two main ways: the Liberalised Remittance Scheme (LRS) and the Foreign Exchange Management Act of 1999 (FEMA). These regulations are in place to ensure the legality and transparency of remittances.
Under the LRS, resident individuals can remit up to USD 250,000 annually for current or capital account transactions. FEMA law enables residents to remit funds for various purposes, including overseas education, living expenses for students abroad, support for close relatives overseas, gifts remittances, emigration, medical treatment abroad, and more.
The RBI guidelines for foreign remittance specify the methods for outward remittances it considers to be fair and just, such as online bank transfers, international wire transfers, demand drafts, and cheques. Payments must be made to the bank or authorized money changer's account through online bank transfers (NEFT, RTGS, or Payment Gateway).
Cash, cheques, or card payments are not permitted. The remitter must choose an authorized dealer (AD) bank or an authorized money changer (AMC) and undergo identity verification.
The AD bank or AMC reports the details of the outward remittance to the RBI through specified forms and systems.
Under the Income Tax Act in India, foreign remittances received by an individual are not taxable in most cases. This means that money sent to India from abroad, as say as a gift or for other purposes, is generally not subject to income tax.
However, there are some specific scenarios where taxation may apply:
Tax on Income Earned Abroad: Any income earned by an individual abroad, even if remitted to India, may be subject to taxation in India if the individual qualifies as a resident and ordinarily resident (ROR) for tax purposes.
Gift Tax: While foreign remittances themselves are not taxable as gifts, if the money is considered a gift from a non-relative and the total value of gifts received during the financial year exceeds a certain threshold, it may be subject to gift tax under the Gift Tax Act.
Transfer of Assets: In cases where an individual transfers assets located outside India to someone in India, there may be tax implications under the Income Tax Act.
Here are some common restrictions on foreign remittances as per the guidelines at that time:
As of my last knowledge update in September 2021, the maximum limit for outward remittance under the Liberalized Remittance Scheme (LRS) in India was set at USD 250,000 per financial year per individual. This means that an Indian resident could remit up to USD 250,000 in a financial year for permissible purposes such as travel, education, medical expenses, investments, and other transactions allowed under the LRS.
However, please note that foreign exchange regulations and limits are subject to change, and it's essential to verify the current maximum limit for outward remittance by referring to the official website of the Reserve Bank of India (RBI) or consulting with an authorized financial institution. Additionally, different limits and guidelines may apply based on the purpose of the remittance and the residential status of the remitter.
The Reserve Bank of India (RBI) guidelines for foreign remittance govern various transactions involving the transfer of money from India to other countries.
TCS rule from next month: In the Union Budget 2023, the tax collection at source (TCS) for foreign remittances under the Liberalised Remittance Scheme (LRS) was raised from 5% to 20%. The government has also clarified that payments made overseas using one’s credit card will remain outside the purview of TCS for the time being. Other payment modes, like debit cards, cash, and wire transfers will continue to attract TCS
Understanding that the specifics of RBI guidelines for foreign remittance may vary based on factors such as the nature of the transaction, and the residential status of the individual or business, is highly important.
RBI imposes stringent regulations on money that leaves the country, making outward remittances subject to more rules compared to their inward counterparts. hus, understanding the intricacies of these regulations proves highly beneficial.
