Can I gift money to my NRI son in Taiwan? What is the transfer limit and will TCS apply?

Sending money to a child living abroad may seem like a straightforward bank transfer. But if your son is an NRI, there are a few rules you should understand before moving money from your Indian savings account to his NRO account.

One common question parents have is whether they can gift money to their children overseas without seeking RBI approval, and whether the transfer will attract Tax Collected at Source (TCS).

The good news is that Indian parents can generally gift money to their children without the gift being treated as taxable income in the recipient's hands under Indian tax law. However, the transfer must comply with foreign exchange rules, and TCS may apply once the specified annual remittance threshold is crossed.

So, how much can you transfer, when does TCS kick in, and can you claim the amount back? Today's Q&A explains such details in response to a query by a reader.

The Reserve Bank of India which is entrusted with administration of FEMA has issued general permission to resident of India allowing them to remit upto $2.50 lakh every year for specified purposes under Liberalised Remittance Scheme (LRS).

As regards your question about limit of such remittance in terms of Indian rupees is concerned, as the annual limit is prescribed in terms of US Dollars, the exact rupee value will depend on the exchange rate between India rupee and US Dollar on the day you transfer the money to NRO account.

However, your son may have to pay tax in respect of gifts made by you in the country of his resident which you need to get investigated.

As far as TCS on remittance under LRS is concerned, yes, TCS will be applicable on the gift which you make into the NRO account of your son. The bank is required to collect tax at source (TCS) @ 20% on the amount of remittance under LRS if the aggregate amount of remittance during the year under LRS exceeds ten lakh rupees.

The amount of TCS is as good as advance payment of tax by the remitter and which can be adjusted against your ultimate tax liability or in case there is not tax liability for the tax year of TCS, the same can be claimed as refund by filing an ITR within prescribed time frame.