Remittance Tax: What You Need to Know Before Sending Money Abroad

In today’s interconnected world, sending money internationally—called remittance—is a common necessity. Whether you are supporting family, investing overseas, or repatriating earnings, understanding the tax implications of remittances can save you from unexpected penalties and help you plan better. 


This blog explains the basics of remittance tax and what you should keep in mind before transferring funds internationally.

What Is Remittance?

Remittance is the transfer of money from one country to another. It usually involves migrants, expatriates, or NRIs sending funds back to their home country for personal or business purposes. Common reasons for remittance include family support, education fees, medical bills, property investments, or business transactions.

Is Remittance Subject to Tax?

Remittance itself is generally not taxed in most countries if the money sent is from income that has already been taxed. However, tax rules may apply based on:

  • The amount being sent

  • The source of funds

  • The purpose of remittance

  • Whether the money is considered a gift or income

Tax on Remittance in India

India allows residents to send up to $250,000 per year abroad under the Liberalised Remittance Scheme (LRS). Banks are required to collect Tax Collected at Source (TCS) on remittances exceeding ₹7 lakh per year:

  • 5% TCS on most remittances above the threshold

  • 0.5% TCS for remittances related to education loans

This TCS can be adjusted against your income tax liability, so it’s not a final tax but a prepayment.

Gift Tax Rules

If you are sending money as a gift, tax laws may require you or the recipient to pay taxes:

  • In India, gifts above ₹50,000 from non-family members are taxable in the hands of the recipient.

  • In the USA, gifts exceeding $18,000 per person per year must be reported, although tax may not be due immediately.

Reporting and Compliance

Many countries require disclosure of foreign financial accounts and assets:

  • The U.S. requires FBAR filing for foreign accounts exceeding $10,000.

  • FATCA reporting is required for foreign financial assets exceeding certain thresholds.

Failure to report can lead to severe penalties.

Tips for Smooth and Compliant Remittances

  1. Use legal banking channels, not cash.

  2. Keep all documentation proving the source of funds.

  3. Understand the tax treaty benefits (like DTAA) between the sending and receiving countries.

  4. Consult tax professionals to optimize tax liabilities and comply with laws.

Conclusion

Remittance tax rules can be complex but understanding the basics will help you send money abroad without any surprises. Proper planning, documentation, and professional advice can ensure your remittances comply with tax laws in both countries.

For expert help with remittance tax, international money transfers, and tax compliance, reach out to Dinesh Aarjav & Associates—your trusted partner in cross-border tax solutions. 

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