Many NRIs earn income in India through various channels, including rental income, interest on deposits, fixed deposits, the sale of securities, or property. They may also receive financial gifts from relatives. When transferring these funds abroad, it is crucial to understand the legal routes available. The two primary methods for repatriating money from India to an overseas account are the Liberalised Remittance Scheme (LRS) and the $1 Million Scheme.
Liberalised Remittance Scheme (LRS)
Although LRS is primarily meant for resident Indians, it has implications for NRIs as well. Under this scheme, a resident Indian can remit up to USD 250,000 (approximately ₹2 crore) per financial year for purposes such as investments, travel, education, and gifting.
For NRIs, LRS is applicable when they receive a gift from a parent or a relative as defined under the Indian Income Tax Act. Such gifts are usually exempt from income tax. The resident donor can transfer funds directly to the NRI’s overseas bank account under LRS. However, Tax Collected at Source (TCS) applies if the remitted amount exceeds ₹10 lakh.
TCS on LRS Transactions
TCS is a tax collected by banks on foreign remittances under LRS that exceed a specified limit. It is not an additional tax but an advance payment, which can be adjusted against the taxpayer’s total tax liability. If the TCS paid exceeds the final tax liability, the taxpayer can claim a refund. TCS details are reflected in Form 26AS, AIS, and TIS on the income tax portal, making it easier to adjust while filing tax returns.
$1 Million Scheme
NRIs who wish to send their own money abroad—derived from rental income, savings, investments, or the sale of property or securities—can utilize the $1 Million Scheme.
To remit funds under this scheme, an NRI must hold an NRO account and submit the necessary documentation to their bank. Typically, banks require Form 15CA/CB, which a Chartered Accountant certifies to confirm that the funds being transferred have been legally earned and the necessary taxes have been paid.
One key advantage of the $1 Million Scheme is that there is no additional tax or TCS on the repatriation of funds, provided that all applicable taxes on the earnings have already been settled.
Comparison: LRS vs. $1 Million Scheme
|
Feature |
LRS |
$1 Million Scheme |
|
Who Can Use? |
Resident Indians |
NRIs & PIOs |
|
Annual Limit |
USD 250,000 |
USD 1 Million |
|
Purpose |
Gifts, investments, education, travel |
Own funds from NRO account |
|
TCS |
20% on general remittance above ₹10 lakh |
No TCS, provided taxes on earnings are settled |
|
Compliance |
No CA certificate required |
Requires Form 15CA/CB |
Summary
- If a resident Indian is transferring money to an NRI, it falls under LRS.
- If an NRI is repatriating their own funds, the $1 Million Scheme is the right approach.
By understanding these schemes, NRIs can ensure smooth and legally compliant fund transfers while adhering to Indian tax laws.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.