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NRIs: Remittance rules you should follow when sending money to India

Before remitting, there are rules attached to outward remittance that you need to know



Customers at Lulu Exchange in Sharjah. The total value of remittances has been increasing steadily over the past decade.
Image Credit: Ahmed Ramzan/Gulf News

Dubai: The flow of funds from migrant workers back to their families in their home country is an important source of income in many economies.

The total value of remittances has been increasing steadily over the past decade and is now the largest source of external financing in most countries, accounting as much as a third of global economic growth.

Whether you want to send funds abroad to your loved ones, pay your child’s college tuition fees, or repatriate your funds as an NRI, you can do all of this easily via outward remittance.

NRI rules for outward remittance

Since it takes place on a secured banking network, this remittance service is a safe means to send money abroad. However, before you remit your money, there are several rules attached to outward remittance that you must know to avoid any mishaps or misunderstandings.

In India, all the laws related to outward and inward remittances fall under the jurisdiction of the Foreign Exchange Management Act (FEMA). Apart from ensuring the money sent abroad is used only for legal purposes, this act helps the Reserve Bank of India (RBI) stabilise the local currency markets.

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All Indian residents are permitted to repatriate funds overseas or spend overseas under the Liberalised Remittance Scheme (LRS) up to $250,000 (Dh918,262) per year. Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) are allowed to repatriate up to $1 million (Dh3.67 million) per year.

How can you define the relevant remittance scheme (LRS)?
Before making an international transaction, one needs to convert the currency for the purpose of investing or spending abroad. The rules governing such transactions come under the ambit of the 'Liberalised Remittance Scheme' (LRS).

As the name suggests, LRS is all about the remittances (investing abroad) that a resident is allowed to make in India. However, in addition to remittances, one can also avail foreign exchange facility (medical expense or while travelling), which also comes under the purview of the LRS.
The flow of funds from migrant workers back to their families in their home country is an important source of income in many economies.
Image Credit:

Rules vary for NRIs and Indian residents

The procedures for the two categories – repatriating funds overseas under the Liberalised Remittance Scheme (LRS) and remitting funds by Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) – vary.

The Liberalised Remittance Scheme (LRS) under FEMA allows all Indian residents to send money abroad without any special permissions, provided that the purpose of transfer falls under one of these conditions:

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• Overseas education or living expenses for students abroad

• Tourism and travel costs, including business travel

• Funding medical treatment

• Purchasing property or shares overseas

• Supporting family members abroad

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• Sending gifts or donations

• Immigration

• Participation in international conferences etc.

If you are an NRI or an OCI, you also need a declaration to the effect that the total remittances being made by you have not exceeded the limit under the foreign exchange laws. As an NRI/OCI, there will be no tax applicable on your remittance since the remittance is not being made under LRS.

How are taxes applied to NRI remittances?

There is one more requirement insisted upon by banks in the case of NRI/OCI remittances, even though such remittances are being made by them to their own overseas bank accounts.

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Banks generally insist that for such remittances, a certificate from a chartered accountant, and an intimation to the income tax department (both of which are filed online) should also be furnished. These forms are not asked for by banks when the remittance is being made under LRS by a resident.

These forms are income tax forms. Tax is required to be deducted at source from a payment to a non-resident of any income which is chargeable to tax, and such forms are required to be furnished irrespective of whether such payment is chargeable to tax or not.

The income tax rules grant an exemption from furnishing such forms if the payment is not taxable as the income of the recipient and is covered by LRS. There is no specific exemption provided for remittances by NRIs/OCIs.

If the NRI/OCI is transferring funds from his Indian bank account to his own overseas bank account, he is not making any payment to anybody at all.
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What if NRIs transfer money between bank accounts?

However, if the NRI/OCI is transferring funds from his Indian bank account to his own overseas bank account, he is not making any payment to anybody at all. A payment would mean that the remittance is being made to another person. One cannot pay anything to oneself.

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Is there a need for such a form at all in case of remittances by NRIs/OCBs to their overseas bank accounts? All incomes paid to NRIs/OCIs are subject to tax (Tax Deducted at Source or TDS) at rates from 20 per cent to 30 per cent, which more than covers all income tax liabilities of the NRIs/OCIs.

When TDS (deducted whenever a payment is made, as opposed to TCS when the payment is collected) has already been deducted on all incomes, where is the question of payment of any further taxes at the time of remittance?

RBI is yet to instruct banks that such forms are needed on only where the tax law requires furnishing of such forms, and that the forms are not required when the payer is transferring funds to himself. This will ensure that unnecessary procedures do not bog down those who wish to remit their funds out of India.

How is tax cut on remittances and when does it apply?
With effect from October 1, 2020, foreign exchange transactions of up to Rs700,000 (Dh33,103) in a financial year are free from tax liability. Amount exceeding Rs700,000 is liable to TCS (Tax collected at Source) in the hands of the individual at 5 per cent and 0.5 per cent if it’s an education loan payment.

TDS is deducted whenever a payment is made, while TCS (Tax collected at Source) is collected by the receiver at the time of receipt of payment. TDS is to be deducted by the individual (or company) making the payment. TCS is to be collected by the individual (or company) collecting the payment.

For Indian residents, when it comes to sending remittances as gifts to NRI, according to the taxation rules on gifts since July 2019, TDS is applicable if the value of the gifts exceeds Rs50,000 (Dh2,364) in a financial year. NRIs will need to disclose such gifts and pay the tax as per the tax rules.

NRIs: Know these key forex regulations before remitting money

As anyone who has business dealings abroad or has travelled overseas can testify, as mentioned above, Foreign Exchange Management Act (FEMA) is a law enacted by the Government of India to control the flow of foreign currency across Indian borders.

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It’s important for Indians working abroad to understand FEMA rules for NRIs very carefully since it can affect the way they can send and receive funds from India. Let’s look at five forex regulations NRIs are required to follow:

• Opening NRI-mandated bank accounts

This is one of the most crucial FEMA rules for NRIs. Once you change your status from resident status to Non-Resident Indian or NRI, that is, living outside India but still a citizen of this country, you must go through some formalities concerning the Savings Accounts you hold.

FEMA rules for NRIs do not allow holding a savings bank account. NRIs need to set up an NRO (Non-Resident Ordinary rupee account) or NRE (Non-Resident External) Account as stipulated by the Reserve Bank of India (RBI).

FCNR is a Foreign Currency (Non-Resident) Account, and NRIs can deposit any foreign currency in it. It’s a foreign currency fixed or term deposit available for one to five years.
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What is the difference between NRO and NRE accounts?
NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. It is an ordinary rupee account and can be held jointly by two or more NRIs.

Proceeds of remittances received in any permitted currency from outside India through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks can be credited to this account.

Funds remitted, therefore, are non-repatriable (transferrable) to another country. An NRE is a Non-Resident (External) rupee account. It permits for money transfer services from outside India, and the entire amount in the account is also repatriable back to the country where the NRI stays currently.

An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; while an income earned in this account is exempt from taxation.

FCNR is a Foreign Currency (Non-Resident) Account, and NRIs can deposit any foreign currency in it. It’s a foreign currency fixed or term deposit available for one to five years. There is no tax implication on this type of account, and funds are completely repatriable on maturity.

• Limitations in NRI investments

NRIs are permitted an unlimited amount of investment options through repatriable and non-repatriable transactions. However, as per the FEMA rules for NRIs, they cannot make investments in small saving or Public Provident Fund (PPF) schemes of the government.

NRIs can purchase residential or commercial property in India. However, purchasing agricultural property, plantations, farmhouse land, etc. isn’t allowed. NRIs can also receive immovable property as gifts from relatives or through inheritance.

NRIs are permitted to remit foreign currency back to India on the foreign repatriable assets such as rent earned from an immovable property owned overseas. According to FEMA guidelines for NRIs, sale proceeds of such assets are non-repatriable outside India without RBI approval.

Repatriation of up to $1 million (Dh3.67 million) per financial year is allowed if you have inherited the property or retired from employment in India.

Students going overseas to study are treated as NRIs and are eligible for all facilities available to NRIs under FEMA. They are entitled to receive remittance up to $1 million a year from their NRE or NRO accounts or profits on property.

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