TAXAJ - TAXAJ Knowledge Base #foreign remittance taxability

Foreign Remittances Purpose Codes - RBI

Wed, 13 Mar 2024 13:29:05 +0530

Purpose Codes for Reporting Forex Transactions Payment Purposes

Purpose code is a code issued by the Reserve Bank of India (RBI) to classify each transaction with the nature of foreign currency transactions. In other words, the Purpose code helps regulators identify the exact nature of a cross-border transaction. So, it is mandatory for any cross-border payments in India.

Bank and other payment processors must report each transaction with a purpose code. Here are the purpose codes for payment purposes given in the tabular form for your reference, which are used for filing foreign remittances with Reserve Bank of India.

New Purpose Codes for Reporting Forex Transactions Payment Purposes

Group No.	Purpose Group Name	Purpose Code	Description
00	Capital Account	S0001	Indian investment abroad -in equity capital (shares)
		S0002	Indian investment abroad -in debt securities
		S0003	Indian investment abroad -in branches
		S0004	Indian investment abroad -in subsidiaries and associates
		S0005	Indian investment abroad -in real estate
		S0006	Repatriation of Foreign Direct Investment in India- in equity shares
		S0007	Repatriation of Foreign Direct Investment in India- in debt securities
		S0008	Repatriation of Foreign Direct Investment in India- in real estate
		S0009	Repatriation of Foreign Portfolio Investment in India- in equity shares
		S0010	Repatriation of Foreign Portfolio Investment in India- in debt securities
		S0011	Loans extended to Non-Residents.
		S0012	Repayment of loans received from Non-Residents (Long & medium-term loans)
		S0013	Repayment of short-term loans received from Non-Residents
		S0014	Repatriation of Non-Resident Deposits (FCNRB/NRERA etc.)
		S0015	Repayment of loans & overdrafts taken by ADs on their own account.
		S0016	Sale of a foreign currency against another foreign currency
		S0017	Purchase of intangible assets like patents, copyrights, trademarks, etc.
		S0018	Other capital payments not included elsewhere
01	Imports	S0101	Advance payment against imports
		S0102	Payment towards imports- settlement of invoice
		S0103	Imports by diplomatic missions
		S0104	Intermediary trade
		S0190	Imports below Rs. 500,000- (For use by ECD offices)
02	Transportation	S0201	Payments for surplus freight/passenger fare by foreign shipping companies operating in India.
		S0202	Payment for operating expenses of Indian shipping companies operating abroad.
		S0203	Freight on imports – Shipping companies
		S0204	Freight on exports – Shipping companies
		S0205	Operational leasing (with crew) – Shipping companies
		S0206	Booking of passages abroad – Shipping companies
		S0207	Payments for surplus freight/passenger fare by foreign airline companies operating in India.
		S0208	Operating expenses of Indian Airlines companies operating abroad
		S0209	Freight on imports – Airlines companies
		S0210	Freight on exports – Airlines companies
		S0211	Operational leasing (with crew) – Airlines companies
		S0212	Booking of passages abroad – Airlines companies
		S0213	Payments on account of stevedoring, demurrage, port handling charges, etc.
03	Travel	S0301	Remittance towards Business travel.
		S0302	Travel under basic travel quota (BTQ)
		S0303	Travel for pilgrimage
		S0304	Travel for medical treatment
		S0305	Travel for education (including fees, hostel expenses, etc.)
		S0306	Other travel (international credit cards)
04	Communication Service	S0401	Postal services
		S0402	Courier services
		S0403	Telecommunication services
		S0404	Satellite services
05	Construction Service	S0501	Construction of projects abroad by Indian companies, including import of goods at the project site
		S0502	Payments for the cost of construction etc., of projects executed by foreign companies in India.
06	Insurance Service	S0601	Payments for Life insurance premium
		S0602	Freight insurance – relating to import & export of goods.
		S0603	Other general insurance premium
		S0604	Reinsurance premium
		S0605	Auxiliary services (commission on insurance)
		S0606	Settlement of claims
07	Financial Services	S0701	Financial intermediation except investment banking – Bank charges, collection charges, LC charges, cancellation of forward contracts, commission on financial leasing, etc.
		S0702	Investment banking – brokerage, underwriting commission, etc.
		S0703	Auxiliary services – charges on operation & regulatory fees, custodial services, depository services, etc.
08	Computer & Information Services	S0801	Hardware consultancy
		S0802	Software implementation (other than those covered in SOFTEX form)
		S0803	Database, data processing charges
		S0804	Repair and maintenance of computer and software
		S0805	News agency services
		S0806	Other information services- Subscription to newspapers, periodicals
09	Royalties & License Fees	S0901	Franchises services – patents, copyrights, trademarks, industrial processes, franchises, etc.
		S0902	Payment for use, through licensing arrangements, of produced originals or prototypes (such as manuscripts and films)
10	Other Business Services	S1001	Merchanting services –net payments (from Sale & purchase of goods without crossing the border)
		S1002	Trade-related services – commission on exports/imports
		S1003	Operational leasing services (other than financial leasing) without operating crew, including charter hire
		S1004	Legal services
		S1005	Accounting, auditing, bookkeeping, and tax consulting services
		S1006	Business and management consultancy and public relations services
		S1007	Advertising, trade fair, market research, and public opinion polling service
		S1008	Research & Development services
		S1009	Architectural, engineering, and other technical services
		S1010	Agricultural, mining, and on-site processing services – protection against insects & disease, increasing of harvest yields, forestry services, mining services like analysis of ores, etc.
		S1011	Payments for maintenance of offices abroad
		S1012	Other services not included elsewhere
11	Personal, Cultural & Recreational services	S1101	Audio-visual and related services – services and associated fees related to the production of motion pictures, rentals, fees received by actors, directors, producers, and fees for distribution rights.
		S1102	Personal, cultural services such as those related to museums, libraries, archives, and sporting activities; fees for correspondence courses abroad.
12	Government not included elsewhere (G.n.i.e.)	S1201	Maintenance of Indian embassies abroad
		S1202	Remittances by foreign embassies in India
13	Transfers	S1301	Remittance by non-residents towards family maintenance and savings
		S1302	Remittance towards personal gifts and donations
		S1303	Remittance towards donations to religious and charitable institutions abroad
		S1304	Remittance towards grants and donations to other governments and charitable institutions established by the governments.
		S1305	Contributions/donations by the Government to international institutions
		S1306	Remittance towards payment/refund of taxes.
14	Income	S1401	Compensation of employees
		S1402	Remittance towards interest on Non-Resident deposits (FCNRB/NRERA/ NRNRD /NRSR etc.)
		S1403	Remittance towards interest on loans from Non-Residents (ST/MT/LT loans)
		S1404	Remittance of interest on debt securities –debentures/bonds/FRNs etc.
		S1405	Remittance towards interest payment by ADs on their own account (to VOSTRO a/c holders or the OD on NOSTRO a/c.)
		S1406	Repatriation of profits
		S1407	Payment/repatriation of dividends
15	Others	S1501	Refunds/rebates/reduction in invoice value on account of exports
		S1502	Reversal of wrong entries, refunds of the amount remitted for non-exports
		S1503	Payments by residents for international bidding
		S1590	Outward remittances below Rs500,000- (for use by ECD regional offices)

Get Started Now

Tax Implications On Foreign Inward Remittance

Tue, 20 Sep 2022 12:59:41 +0530

Tax Implications On Foreign Inward Remittance

When money is being transferred from abroad to India, surely there are tax implications to consider. If you are the one sending money, naturally you’d think about how much tax you need to pay in the country of your residence for remitting money to India. On the other hand, if you are a resident Indian and receiving money from abroad, you’ll want to know if you are liable to pay tax on the amount received. In this post, we’ll examine both these questions and more.

How much tax is applicable to the sender, on money transfer from abroad to India?

Tax Implications On Money Transferred From Abroad To India

Sep 17 18| by Rashid Rasheed

How much tax is applicable to the sender, on money transfer from abroad to India?

No tax is applicable on the money being transferred from abroad to India. None at all. This is because you’d have already paid tax on the income you are earning in the country abroad. India has signed the Double Taxation Avoidance Agreement with 85 other countries.

No.	Countries
1.	Armenia
2.	Australia
3.	Austria
4.	Bangladesh
5.	Belarus
6.	Belgium
7.	Botswana
8.	Brazil
9.	Bulgaria
10.	Canada
11.	China
12.	Cyprus
13.	Czech Republic
14.	Denmark
15.	Egypt
16.	Finland
17.	France
18.	Georgia
19.	Germany
20	Greece
21.	Jordan
22.	Greece
23.	Jordan
24.	Hungary
25.	Iceland
26.	Indonesia
27.	Ireland
28.	Israel
29.	Italy
30.	Japan
31.	Kazakhstan
32.	Kenya
33.	South Korea
34.	Kuwait
35.	Kyrgyzstan
36.	Libya
37.	Lithuania
38.	Luxembourg
39.	Malaysia
40.	Malta
41.	Mauritius
42.	Mexico
43.	Mongolia
44.	Montenegro
45.	Morocco
46.	Mozambique
47.	Myanmar
48.	Namibia
49.	Nepal
50.	Netherlands
51.	New Zealand
52.	Norway
53.	Oman
54.	Philippines
55.	Poland
56.	Portugal
57.	Qatar
58.	Romania
59.	Russia
60.	Saudi Arabia
61.	Serbia
62.	Singapore
63.	Slovenia
64.	South Africa
65.	Spain
66.	Sri Lanka
67.	Sudan
68.	Sweden
69.	Switzerland
70.	Syria
71.	Tajikistan
72.	Tanzania
73.	Thailand
74.	Trinidad and Tobago
75.	Turkey
76.	Turkmenistan
77.	UAE
78.	UAR
79.	Uganda
80.	UK
81.	Ukraine
82.	USA
83.	Uzbekistan
84.	Vietnam
85.	Zambia

As per the Double Taxation Avoidance Agreement between India and any one of the foreign countries mentioned above, if you have already paid tax on the income earned abroad, then you need not pay tax when transferring that money back to India. The only tax you’d be required to pay is the service tax (negligible amount) and the transaction charges when you transfer money to India using any foreign exchange or money transfer services.

So if you are thinking of transferring funds from overseas to your parents or close relatives for their personal expenses, you should just directly transfer it to their savings account in India. There won’t be any further tax applicable on that amount.

So how much money can you send to India in a year?

Theoretically speaking, there is no limit to the amount of money you can send back to India in a year. All governments welcome funds from foreign countries as it bolsters the economy. India has not sent any limits on receiving funds from abroad.

However, the foreign country you are in might have regulations that limit the amount of money you can send abroad. These regulations differ from country to country.

For ex: In the USA, you are allowed to send an unlimited amount of money to India.

If you are sending the money to your NRE/NRO account or to the bank account of your close relatives, then it is tax-free.

As per US law, a close relative of an individual is defined as ;

A current or former spouse;
A father, mother, guardian, brother, sister, son, daughter; or
A father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law.

However, if you want to send money to your friend in India, then you can send money, tax-free, only up to US$ 14,000 per person per year. Beyond this amount, you’d have to pay a gift tax in the US.

How much tax is applicable to the receiver, on money received from abroad to India?

No tax to be paid if the sender is your close relative. As per RBI rules, the remittance money received from persons abroad, who are your close relatives, is treated as a tax-free gift. Close relatives are defined as ;

Spouse of the individual
Brother or sister of the individual
Brother or sister of the spouse of the individual
Brother or sister of either of the parents of the individual
Any lineal ascendant or descendant of the individual
Any lineal ascendant or descendant of the spouse of the individual

However, if you are receiving money from abroad and the sender is not related to you, then any amount over Rs. 50,000 (about US$ 700) will be liable to be taxed as your income. You’d have to pay income tax on the excess amount.

For ex: If your friend from the US sends you US$ 10,000 as a gift (around Rs. 7,00,000 at today’s US Dollar rate in India). You’d have to add the excess Rs. 6,50,000 to your income and pay tax on it.

If the gift amount exceeds US$ 14,000, your friend in the US would have to pay the gift tax there and you would have to pay the income tax on the excess amount above Rs. 50,000 in India.

Frequently Asked Questions

1. If I send money from abroad to a normal Indian savings account, will it be taxable?

If you are sending money to your close relative, it won’t be taxable. However, if you are sending money to your friend or acquaintance in India and the amount is above Rs. 50,000, then it is taxable. The excess amount above Rs. 50,000 would be treated as income and the receiver of the funds would have to pay income tax on it in India.

2. What are the tax implications for transferring money from India to the USA?

The Tax implications of sending money from India to the USA are dependent on the amount of money you are sending.

You’d have to pay GST on forex transactions in India.

Tax on money transfer from India to any country
Money Transfer Slab	Minimum Tax – Maximum Tax
Slab 1 [Up to Rs 1 lakh]	Rs. 45 – Rs. 180
Slab 2 [Rs 1 lakh to Rs. 10 lakh]	Rs. 180 – Rs. 990
Slab 3 [Above Rs. 10 lakh]	Rs. 990 – Rs. 60,000
The maximum GST for forex transactions is capped at Rs. 60,000

3. Do I need to pay taxes on foreign money transferred to my account?

If the money is sent by your close relative abroad, then you don’t have to pay taxes.

However, if the money has been sent by someone who is not your close relative, then up to Rs. 50,000 the money is considered as a tax-free gift. If the money received in your account is above Rs. 50,000, then you’d have to add the excess amount to your income and pay income tax.

4. How much money can I send abroad from India in a year?

As per the rules of Liberalized Remittance Scheme (LRS) of RBI, a resident Indian can remit abroad up to US$ 2,50,000 in a single financial year (Apr 1 to Mar 31).

Get Started Now