The Foreign Exchange Management Act, 1999 defines the statutory context for the management of foreign exchange transactions in India. Under the Foreign Exchange Management Act (FEMA), 1999, all transactions encompassing foreign exchange are categorised as either capital or current account transactions. All residents, including minors, are entitled to remit up to USD 2,50,000 each financial year for any authorised current or capital account transaction, or both, under the Liberalised Remittance Scheme (LRS). For all LRS transactions performed through authorised persons, the resident individual must give his or her Permanent Account Number (PAN).
The number of remittances is unrestricted under the LRS. However, throughout a financial year, the overall amount of foreign exchange acquired from or sent through all channels in India should not exceed USD 2,50,000. A resident citizen would not be entitled to make any additional remittances under this scheme after making one for an amount up to USD 2,50,000 during the financial year. However, depending on the form of remittance, you may encounter some limitations on the amount you need to send.
For example, if you are a customer of State Bank of India, you are entitled to the current limit of USD 2, 50,000 each financial year under the RBI’s Liberalised Remittance Scheme (LRS). Within the total threshold of LRS, per transaction cap is equivalent to Rs.20 lacs or USD 25,000, whichever is lower on the day of transaction if made through a bank branch. Within the total limit of LRS, each transaction cap through Retail Internet Banking (INB) is equivalent to Rs.10 lacs or USD 25,000, whichever is lower on the day of transaction. This service is accessible in USD, GBP, EUR, AUD, SGD, CAD, and 91 other currencies at all SBI branches.
Is foreign remittance is taxable in India?
Money remitted outside India will be subject to a 5% tax collected at the source (TCS). The TCS rate will be 0.5 per cent of the money sent if the transfer is paid out against a loan acquired for higher education. In this context, the Finance Act of 2020 added a new sub-section (1G) to Section 206C. TCS will apply to remittances that are transferred outside of India under the Reserve Bank of India’s Liberalized Remittance Scheme (LRS). LRS permits residents to transfer up to $250,000 each fiscal year to cover expenditures such as travel, medical care, education, gifts and donations, upkeep of the close family, and so on. Indian citizens can also establish, and manage foreign currency accounts with banks outside of India for the purpose of carrying out the scheme’s authorized transactions. Needless to say, unless tax has already been deducted at source (TDS), every overseas transfer above Rs 7 lakh would be subject to a tax-collected-at-source (TCS). Please remember that the TCS will only apply to the amount over Rs 7 lakh in a given financial year.