Wednesday, December 30, 2009

Remit money to India

People of Indian and Chinese origin are the two largest contributors in terms of remittance to their respective country. Sending money back to your own country is now very easy - with lots of options available ranging from cheque, draft, instant wire transfer etc. We will discuss some of these options provided by different service providers later, but first we wanted to focus on tax implications.

While sending money back to India, you will have to keep in mind various provisions of Gift Tax act and Income Tax act.

1. If you send back money to your own bank account:
All income earned out of India by NRI is exempt from tax. The logic being that you would have been taxed in the host country so this rule avoids double taxation. Hence any remittance to India out of this income will not attract tax. This means that if you send money to your own account in India whether NRE, NRO or any other account in India, there will not be any tax on the transaction. You can use the money for any purpose you desire. However, any income arising out of the amount invested in India will be taxed.

2. If you send back money to your resident relative's bank account:
This is treated as a Gift to the relative. This gift will be tax free in the hands of both gifter as well as beneficiary. However, any income arising out of this amount will be clubed with the gifter if the money is transfered to certain individuals like spouse as per the Gift Tax Act. The money can be transferred to your mother's account without worrying about clubbing of income arising out of the transferred amount. Hence one can draw cheques, Money Orders, Telegraphic Transfers, Mail Transfers, Bankers Cheques etc, in favour of a relative in India, and it will qualify for exemption under the Gift Tax Act. Of course, there is no Income Tax on the transaction.

3. If you send back money to your non-relative's bank account:
Gifts in the form of cash from non-relatives were exempted up to a limit of Rs 50,000 a year (if sum exceeds Rs 50,000, then entire amount is eligible for being taxed).

Some of the options for transferring money to India:
Private agencies: The Reserve Bank of India (RBI) has authorised Western Union and MoneyGram to facilitate transfer of money into the country. This is a convenient channel as it does not require either the sender or the receiver to have a bank account. It takes around two hours to transfer money into the Indian subcontinent. You can go and collect the money after proving your identity at banks, post-offices, petrol pumps and prominent shopping centres we have tie-ups with. These agencies also allow online transactions, which make the transfer even quicker at the same or a slightly higher cost. The fees charged are roughly $30 for transferring $2,500. Remit2india is the only other agency allowed to conduct international money transfer. The transfer is done only through the portal, so you will not find countrywide outlets where you can walk in anytime. Its transactions are done primarily via bank accounts and take far more time than Western Union and MoneyGram. The website's rupee-express service, available only to US customers, protects against exchange rate fluctuations by allowing transfer of a fixed rupee amount to India, regardless of the value of the currency.

Banks: Wire/telegraphic transfer is much cheaper than sending money via agencies, but may take up to 48 hours. This is much quicker than the traditional ways of transferring money to India, like mailing local cheques or bank drafts. The minimum charges could be Rs 700-1,000. For instance, SBI charges 0.15 per cent of the rupee equivalent of the amount or a minimum of Rs 700. Both parties should have bank accounts to enable a wire transfer, but not necessarily in the same bank. Check out the timeframe of the transfer before you use a bank's services as some smaller banks in countries like India take lot of days to transfer money. The ideal way of routing funds from abroad is through a branch of an Indian bank or a foreign bank with a presence in India. This ensures faster processing. You can also go for home delivery of the money to the beneficiary's residence for a nominal fee. Or you can transfer the money automatically to a bank account through ECS. The cost of transferring money through online banking is nil in most banks today. This could mean a lot of saving compared to private agencies. For example, up to Rs 10,000 can be saved if six remittance transactions of $2,500 each are made in a year through ICICI Bank's portal Money2India. Online transfers don't require the sender and the receiver to have an account in the same bank.


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