NRIs often have earnings in India from various sources, such as rental income, interest on savings, fixed deposits, sale of securities, or property. Additionally, they may receive financial gifts from relatives. When it comes to transferring these funds abroad, it is essential to understand the legal frameworks available for repatriation. The two primary methods for transferring money from India to an overseas account are the Liberalised Remittance Scheme (LRS) and the $1 Million Scheme.
Liberalised Remittance Scheme (LRS)
While the LRS is primarily designed for resident Indians, it plays a role in fund transfers to NRIs as well. Under this scheme, a resident Indian can remit up to USD 250,000 (approximately ₹2 crore) per financial year for various purposes, including investments, travel, education, and gifts.
For NRIs, LRS becomes relevant when they receive a gift from a parent or a relative, as defined under the Indian Income Tax Act. Such gifts are generally exempt from income tax. The resident donor can transfer funds directly to the NRI's overseas bank account via LRS. However, Tax Collected at Source (TCS) applies if the remitted amount exceeds ₹10 lakh.
Understanding TCS on LRS
TCS is a tax collected by banks on foreign remittances under LRS when the amount surpasses a certain threshold. It is not an additional tax but an advance payment that can be adjusted against the taxpayer’s total tax liability. If the total TCS paid exceeds the final tax liability, the taxpayer can claim a refund. These details are reflected in Form 26AS, AIS, and TIS on the income tax portal and are useful while filing an income tax return.
$1 Million Scheme
If an NRI wishes to repatriate their own money abroad—such as earnings from rental income, savings, investments, or the sale of property or securities—the $1 Million Scheme is the appropriate option.
To transfer funds under this scheme, an NRI must maintain an NRO account and submit the necessary documentation to their bank. Generally, banks require Form 15CA/CB, which is certified by a Chartered Accountant to verify that the funds being transferred have been legally earned and taxed appropriately.
One key advantage of the $1 Million Scheme is that there is no additional tax or TCS on the repatriation of funds, provided all applicable taxes on the source income have been settled beforehand.
Comparison: LRS vs. $1 Million Scheme
| Feature | LRS | $1 Million Scheme |
| Eligibility | 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, but applicable taxes must be paid on earnings |
| Compliance | No CA certificate required | Requires Form 15CA/CB |
Key Takeaways
- If a resident Indian is transferring money to an NRI, the transaction falls under LRS.
- If an NRI is repatriating their own funds from India, the $1 Million Scheme is the preferred option.
Understanding these two schemes ensures a smooth and compliant transfer of funds abroad while adhering to Indian tax regulations.
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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.
