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Maximum amount of money you can send from UAE to India, and back. Picture used for illustrative purposes. Image Credit: Photo Virendra Saklani/Gulf News

Dubai: As an NRI or Non-Resident Indian living in the UAE, if you were wondering what is the maximum amount of money that you can send back home, here are the pertinent laws in India that regulate how much you can or cannot remit.

Under the exchange control law, as an NRI, you are allowed to remit up to $1 million (Dh3.67 million) from your NRO account (explained below what it is) after you furnish necessary documentary evidence.

Remittance exceeding $1 million (Dh3.67 million) requires special permission from the Indian central bank, the Reserve Bank of India (RBI). But first, a quick brief look at what are NRE and NRO accounts.

Quick brief on what are NRE and NRO accounts

When an NRI moves to another country, it is likely that they will open either a Non Resident External (NRE) or Non Resident Ordinary (NRO) account for their funds.

An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; whereas, an NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. An NRI can open a joint NRO account with one or more NRIs or Indian citizens.

NRE account is freely repatriable (can be converted to any foreign currency), while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to $1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant.

An NRO account is like your regular bank savings account but has certain restrictions. In this account you can deposit your rupee earnings from India such as rent, interest, dividends etc. You can also deposit funds from abroad that are in the form of freely convertible foreign currency.

The funds in NRO account are usually from income earned locally, like rent on a property in India or certain capital account transactions like sale of property purchased prior to becoming an NRI.

Can NRIs transfer from NRO to NRE accounts without any tax incurred?

Since NRIs transfer money under the $1 million scheme, they can transfer up to $1 million from NRO to NRE or foreign account – provided the money was initially sent from NRE account, abroad, or any investment income made in India – on which tax has already been paid to the Indian government.

Further, the money can be remitted to NRE or abroad by taking a certain certificate from a practicing Chartered Accountant.

Decreasing value of rupee incited RBI to exempt interest rate on NRE deposits in December 2011, a change that propelled NRIs to save their funds in NRE deposits, as they are tax-free and freely repatriable. Here, repatriation means you are free to move your money to your overseas account.

However, since then, when it comes to moving funds from NRO to NRE accounts, many have complained of the restrictions as stringent as several banks in India are constantly looking to curb any un-sourced income being moved around to avoid taxes.

Any discrepancy in proving the source of the funds, leads to banks rejecting the transfer request, which can be avoided by getting it verified with a CA certificate. So, while it's allowed, it's not easy or hassle-free in many instances.

Issue transferring money from NRO to NRE accounts?
NRIs have faced difficulties transferring their money from NRO to NRE account, as there are some prevalent conditions on how to transfer money from NRO to NRE account. Below are a few conditions every NRI must know about transfer of funds from NRO to NRE, as made compulsory by the RBI, since 2012.

Legally, an NRI can transfer money from NRO to NRE account only if the amount is within $1 million in a financial year, which is the maximum limit. Also, transfer of money from NRO to NRE account is subject to payment of applicable taxes. Only if the taxes are clear you can move the funds.

Lastly, and importantly, the source of funds in the NRO account should be transferable or repatriable - which is where many face trouble and transfer requests get denied. The primary source of funds deposited into NRE accounts must be from your earnings abroad. In other words, you cannot deposit money from sources in India such as house rent or pensions in this account.

How much money can be sent abroad from India?

Earlier, in 2007, RBI had fixed the maximum limit of sending money to an overseas bank account to $200,000 (Dh734,602) per year. After the rupee weakened, RBI reduced this limit in 2013 to $75,000 (Dh275,475) per year. With a stronger value of rupee, RBI has now increased the maximum limit to $250,000 (Dh918,222).

The Reserve Bank of India (RBI) has been taking steps in simplifying the process of sending money overseas. In February 2004, the RBI had announced its Liberalised Remittance Scheme (LRS) that regulates the limitation of money that you could send overseas.

What is 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.

5 per cent remittance tax levied for remittances of NRIs or Indian residents?

Earlier under LRS, individual used to send money under LRS without much complexity, through authorised banks. Now in order to track such remittances and widen the tax net the Indian government introduced this law, wherein if an individual is remitting money overseas from India, they should pay 5 per cent tax on the remittance amount to authorised lenders, who shall then deposit the same with the government.

The tax is applicable only if the aggregate of remittances is Rs700,000 (Dh34,825) or more during the relevant financial year. According to the RBI, the LRS remittance scheme applies only to Indian residents.

NRIs can remit money from India to abroad under the $1 million (Dh3.7 million) remittance scheme, as mentioned earlier, wherein remittance outside India up to $1 million per financial year is allowed out of balances held in NRO account. (Remittance exceeding $1 million will require special permission from the Reserve Bank of India.)

So the good news for NRIs is that the tax of 5 per cent is directly not applicable for them, but rather only mainly pertinent to the current resident individuals of India.

Can the remittance tax indirectly affect NRIs?

Though it does not directly affect NRIs, it will be significant for them if they remit money from India or are sent funds from other parties.

Payments for foreign tour packages from said India-based accounts are subject to 5 per cent tax without any exemption; and this includes business tours, family tours and religious tours, covering all expenses related to travel, lodging and boarding.

For education-related foreign remittances funded by loans, the tax will be just 0.5 per cent for any amount above Rs700,000 (Dh35,106); which takes into account the significant number of Indian students who take loans to pursue education abroad.

In case of a person remitting funds abroad under LRS or buying a foreign tour package who does not have Permanent Account Number (PAN) card or Aadhar card; the rate of tax will be 10 per cent instead of 5 per cent.

Am I affected by the remittance tax levy if I invest in foreign stocks?

Though NRIs are not directly impacted by the new tax rules, Indian residents who invest in foreign stocks, bonds or property will find their upfront cost and expenses going up as the tax element will increase their costs.

For example, anyone remitting $9,500 (Dh34,893) or above for buying stocks or property abroad will have to pay the tax, which will be collected by the banks.

Individuals can open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme, but will have to pay 5 per cent remittance tax if the investments are above the threshold limit. Here also, the investors will have to bear the extra cost on account of the tax.

Investors remitting less than Rs700,000 (Dh35,106) per year will see no impact of these above rules.