Liberalized Remittance Scheme (LRS) is an option where all resident individuals (as defined under FEMA 1999), which includes minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
● Under the LRS, currently, the upper limit per individual for a financial year is USD 2,50,000. For any legal reasons, family members of the resident individual can make the payment under LRS on an individual basis.
● You can transfer money abroad for reasons like your child’s education, personal fund expenses like private visits, maintenance of close relatives, etc., or buying overseas property. Permissible reasons are given below.
● You cannot remit funds abroad for illegal purposes like buying lotteries or banned magazines, amongst others.
● There are no restrictions on the frequency or number of transactions during an FY. However, the total amount of foreign exchange remitted through all sources in India under LRS during the current FY should be within the LRS limit as specified by RBI.
Remit under LRS in two ways:
1. You can conveniently place a request thru internet banking for an LRS transfer. You can currently remit USD 25,000 per day online to pay for overseas education, travel, medical purposes, or living expenses.
- You may also visit your nearest authorized dealer to request those mentioned above and other purposes which are permitted.
How do gift money to family members Tax-free?
There are many ways individuals in India can save tax under various sections of the Income Tax Act. One way to reduce tax outgo is by gifting money or investing in the name of specific relatives.
Experts, however, suggest that it is better to invest the gifted money as it helps in saving tax and generates tax-free income under various sections offered under I-T laws in the country.
While gifts received by any person above Rs 50,000 are taxable under ‘income from other sources’ under tax laws in India, there are special exemptions for the grant to some specific relatives like primary children and parents.
You may note that any amount is given to relatives like parents, children (not minors), and parents-in-law can generate entirely tax-free from them and reduce your total tax outgo. In the case of parents/parents-in-law, the money you intend to gift should ideally be invested in tax-exempted instruments.
Any investment in the name of your parents or children can help in saving tax and even generate tax-free internet income. There are many ways to invest or gift money to your parents/parents-in-law that can bring down your tax liability.
What are the 2021 gift tax exclusions?
Gift tax has to be paid when a person gives money or property to someone other than their spouse or dependent. This excise starts at 18% and can reach 40% on specific gift amounts. It is the donor’s responsibility to pay the tax typically and not the individual receiving the gift. While there may not be any immediate tax consequences for the recipients, they may have to pay capital profits tax if they sell gifted assets in the future.
Not all gifts are subject to this tax, though. Sure gifts are entirely free of tax, including:
● School tuition and education payments
● Charitable donations
● Medical expenses
● Political contributions
● Grants to spouses and dependents
Five tips to avoid paying tax on gifts
Respect the gift tax limits
It is better to stay within the limit set by IRS to avoid paying the gift tax. What is the gift tax limit? In the 2020 tax year, the limit was set at $15,000 per recipient, though the amount typically increases annually according to inflation.
Essentially, you can give $15,000 in gifts to as many individuals as you choose without being responsible for the gift tax. The government will incur the surcharge when you give over that amount to any recipient.
Spread out the gift between years
Gift tax can also be avoided by spreading the gift out between years, ensuring to avoid anything above $15,000 in one tax year. This plan can help you maximize the amount you give, but you can reduce the overall taxes owed on your present by spreading it over time.
Providing a gift for medical expenses directly
The most prominent exception to the gift tax limit is money explicitly designated for medical expenses. However, you must pay the gift directly to the medical institution or insurance provider. Skills made instantly to the recipient to cover medical costs will still be subject to the gift tax limit.
Provide a gift directly for education expenses
Like medical expenses, educational gifts can also avoid the gift tax limit when paid directly to an institution. Tuition costs and other qualifying expenses can be gifted if the donor only pays the school or university instead of the student. But, gifts made to cover books or supplies will not count towards the exclusion of education and instead will be counted under the annual gift limit.
Leverage marriage in giving taxes
Surprisingly enough, married couples are treated indifferently regarding the gift tax limit. The gifts one’s spouse gives or receives will be classified separately from the other spouse, regardless of whether or not they file taxes jointly.
The parameters of this exclusion are twofold. First, you and your spouse can provide gifts of up to $15,000 per recipient in one year, whereas basically, married couples are allowed to give up to $30,000 per recipient each year.
The second way to leverage this rule is by gifting to married couples. You can donate up to $15,000 per spouse without exceeding the annual gift tax limit. Spouses are treated differently regarding the yearly limit, regardless of how many combined or shared assets.
