India is the world’s leading remittance recipient, with more than $12 billion sent from the US to India in 2019 alone. Knowing how much you’ll pay in tax and how the process works can give you peace of mind when sending money from the US to India.
How much money can I transfer from the USA to India?
There is no money transfer limit on how much you can transfer to India from the US, at least none imposed by the Indian or US governments. However, the specific money transfer or banking service that you are using might impose limits on how much they can accommodate in a single transfer. If you’re planning on initiating a large transfer, consider using a limit-free provider such as XE.
Do I have to report and pay taxes to transfer money from abroad to India?
When you send money to any persons abroad in India, the first $15,000 USD will be exempt from taxes by the IRS under the Gift Tax policy. This limit is charged on a per person basis — if you would like to send $15,000 USD each to multiple persons, you will still be off the hook for any gift taxes.
If you do send more than the allotted $15,000 USD, all you need to do is to file an IRS Form 709 to disclose the gift. On top of the $15,000 annual exclusion, you get an $11.7 million lifetime exclusion in 2021. Should you be fortunate enough to have remitted over $11.7 million, you may then be liable for gift taxes at a rate anywhere from 17% to 40%.
Sending a lot of money out of the country? Know what the IRS expects of you.
Tax for sending money from the USA to India
There is no recipient tax on money being transferred from abroad to India when it’s being sent to blood relatives. In general, “blood relatives” — including spouses, children and grandchildren, siblings or in-laws — do not pay tax on any amount that you send.
However, if you’re sending more than about $700 to someone in India who isn’t a blood relative, they’ll need to report it on their taxes. No matter how you send the money, your recipient could be on the hook for a gift tax if they aren’t a blood relative, as regulated by the Indian Income Tax Act.
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Tax for India residents sending money abroad
How much money can you send from India to the US? Well, in February 2020, the Indian government introduced a new law that would put in new limits for remittances out of India. Because of this law, resident individuals in India can only remit a maximum of USD $250,000 overseas each year. Additionally, any amount remitted above ₹700,000, which translates to roughly 9,500 USD, will be taxed at 5%.
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What are the penalties in India if my recipient fails to file?
If you don’t report a transfer on your taxes in India, you could be charged a 10%, 50% or 200% penalty on the taxes owed, depending on whether it was considered intentional or not.
With so much attention on money entering and leaving India, if you fail to report large sums, don’t know you have to report them or don’t report them correctly, it will likely be discovered. Make sure to declare any large remittance as income on your general tax return with the Indian Income Tax Department.
To avoid the severe penalties that could come with a failure to report large sums of money into the country, speak with a professional to guarantee that everything complies with the laws of both the US and India.
How will my recipient in India get the money?
Your recipient can pick up the cash in person or have the money deposited directly into their bank account or mobile wallet. Not every provider will offer all three options, so check before initiating a transfer.
In general, your recipient will provide ID or a confirmation number for the transaction to pick up the money in cash.
How to send money to India
What is the IRS limit on sending money to India?
The IRS has no limit on how much money you can send to India. However, above $11.7 million USD, you’ll be liable for taxes.
How to avoid double taxes on money transfers to India?
Since India has a Double Taxation Avoidance Agreement with various countries, including the US, it would typically be very rare for you to be accidentally taxed twice. Should you be double-taxed, do work with a financial advisor to assess the specific provisions under which you can claim a tax credit and recoup your money.
Can I avoid IRS penalties if I fail to file?
Yes, you can avoid IRS penalties if you can show reasonable cause for your failure to file — such as a house fire, serious illness or natural disaster. Additionally, because of the pandemic, the IRS has delayed the deadline to file taxes and simply waived other types of taxes. Consult your personal financial advisory on the impact this might have on you.