CBEC (Central Board of Excise and Customs) Circular No. 163/14/2012 –ST dated July 10, 2012 clarified that there is no service tax per se on the amount of foreign currency remitted to India from overseas. This is a good news for NRIs as they will not be charged any service tax on money transfer services provided by banks or financial institutions in India or abroad for sending money in their NRE or NRO account or direct remittances.
When an NRI initiates inward remittance (transfer of funds to India), normally two institutions are involved – 1. bank/financial institution in his home country (located outside India) and 2. bank/financial institution in India. Lets understand service tax implications in case of both financial institutions.
1. Bank or financial institution located outside India:
As the person sending the money (NRI) and the company (financial institution) conducting the remittance are located outside India, in terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax in case any fee or conversion charges are levied for sending such money.
2. Bank or financial institution in India:
As the location of the recipient of services (NRI) is outside India (in terms of Rule 3 of the Place of Provision of Services Rules, 2012), even the Indian counterpart bank or financial institution who charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax
In short, while service tax may not be material in deciding whether to transfer funds or not, it is a welcome step for NRIs as amount, however small, in your pocket is better than amount in government’s pocket.
No Service Tax on NRI Money Transfers from abroad (Inward Remittance) – CBEC
About Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) Mr. Jigar specializes on NRI Investments and Taxation. He is proud to be one of only 21 CFA Charterholders in India working as consultants. (In 2011, when he became CFA Charterholder, out of 97,173 CFA Charterholders in the World, only 697 Charterholders were in India and only 3% work as consultant; Source: www.newcfa.org). He received his MBA (Finance) from University of Illinois, Chicago, USA, CPA from USA and a Chartered Accountant from India. Jigar has over 15 years of professional experience including more than 4 years with KPMG USA’s Risk Advisory Services. Currently, he provides Wealth Management and taxation consulting serving clients from USA, UK, Americas, Europe, Middle East, Asia, Africa, Australia and India.
34 Comments
In spite of this clarification, the website SBI, CitiBank and many online transfer companies mention service tax. The SBI website mentions as under. The weblink is given below.https://www.onlinesbi.com/nri/remittances/sbinri_rem.html.
“Service Tax for conversion of Foreign Currency to Indian Currency or vice-versa is payable to the Government of India, Ministry of Finance. The service tax rates with effect from 1st April, 2012 are as follows:
0.12% of the gross amount of currency exchanged for an amount of Rs 1,00,000, subject to minimum of Rs 30/-; and
Rs 120 and 0.06% of the gross amount of currency exchanged for an amount of rupees exceeding 1,00,000 and up to 10,00,000; and
Rs 660 and 0.012% of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000; subject to a maximum amount of Rs 6,000.
* Education cess @ 3% on service tax is also applicable for every transaction.
* The above charges structure is subject to change.
Even Citi Bank website mentions the service tax.
The following appears in the Timesofmoney Website.(https://www.timesofmoney.com/remittance/axisremit/secure/axisremitExchangeRate.jsp?partnerId=AXISREMIT&uiId=AXISREMIT&defaultMenu=exchangeRate.)
With Effect from 1st April 2012, Service tax will be recovered from the Transaction Amount, after conversion, at the following tax rates:
Upto INR 100,000 0.12% of the gross value or INR 30/- whichever is higher + 3% cess (education and higher education cess on service tax amount)
INR 100,001 to INR 1,000,000 INR 120 + 0.06% of the gross value + 3% cess (education and higher education cess on service tax amount)
Above INR 1,000,000 INR 660 + 0.012% of the gross value subject to a maximum of INR 6000 + 3% cess (education and higher education cess on service tax amount)
This means various banks are charging the service tax in spite of GOI notification no service tax is payable for inward remittances.
The above is in accordance with the Service Tax (Amendment) Rules, 2012 of the Government of India.
There is no service tax on money transfer services but there is service tax on foreign exchange conversion services. If $1000 is transferred into FCNR account, there is no service tax. However, if $1000 is transferred to NRE/NRO account in INR, two services are involved – money transfer and currency conversion. While there is no service tax on money transfer, service tax as per table mentioned will be payable on conversion. Thanks for your comment. I hope this helps.
“While there is no service tax on money transfer, service tax as per table mentioned will be payable on conversion” – Then what is the point in using NRE account ?
Other banks like money2india.com , click2remit.com are providing transaction free service and credit to domestic savings account. Of course, there is TDS applicable for the interest gained, exceeding 100,000 INR. However, TDS deduction will be very less compared to 3 % as educational cess.
Correct me if I am wrong.
Best
Sujeeth Pakala
It has nothing to do with NRO or NRE or Savings or Current Account. Whether money transferred to any account by any agency, the service tax on conversion from one currency to another will be applicable. Whether they tell you or not, show separately or not or include in the conversion rate itself, they will collect and pay the service tax as per the table, which is very minimal. Also, the 3% is not on the total amount but only on the tax amount i.e. For Rs. 100,000, the total tax would be 123.60 instead of 120.
If you invest or transfer your funds in NRO, in addition to service tax, TDS would be deducted @ 30.90% if you do not have TRC (Tax Residency Certificate). Transfer to NRE is the best option as no income tax and full repatriability of funds without any limit. Thanks.
I came to Finland on Jan 18 2014 and would be going back to India on March 20th 2015. For the Indian FY 2013 to 2014, i have already paid income taxes in India and Finland.
I have recently transferred ‘x’ lakh to my Indian regular savings account in Jan 2015.
I have heard that it would incur some taxes. Is that true ? how much % ? Is the tax calculated on the money transferred or on the interest earned ?
I believe i am not tax resident in India for FY 2014-2015. kindly confirm this as well
I wasn’t aware of NRE account so i transferred to normal savings account in India.
Waiting for reply. Any help would be really appreciated !
Many thanks Poonam
There is no tax on transfer of funds. Tax is only on Income. As you were an NRI during 2014-15, your foreign income is not taxable in India. The money transferred to India, if invested in FD or any other securities, you would have to pay tax on the income (e.g. interest). If you are coming back to India in March 2015, you would be resident for 2015-16 and won’t be able to keep NRE account and would have to pay tax on interest income. Thanks.
Thanks Jigar Patel for the prompt response.
But my question is since i have transferred money to regualr savings account instead of NRE account . Do i need to pay any additional tax ? if yes what sort of tax ?
would that tax be on the interest earned in the savings account or something else ?
btw – your forum is very helpful .i would recommend it to my friends 🙂
Regards
Poonam
There is no additional tax except that the interest on NRE account is exempt from tax; whereas the interest on saving account is taxable under the Income Tax Act. As mentioned, tax would be only on the interest income. Thanks.
Thanks alot again for your response.
Just one more additional query :
I will have NRI status for the FY 2014-2015 i.e my foreign is not taxable in India.
As you said interest on the saving account is taxable , so my question is Let’s say if i earn a interest of 30,000 INR in FY 14-15 for my savings in savings account in indian bank.
So as per Income tax act, interest up to 10,000 is not taxable ,so i need to pay tax on 20,000 INR . Is that correct understanding ?
Also if i dont have any other income in fy 14-15 in India except the interest amount (20000), would i still be taxable since any income up to 2.5 lakh is tax free . Is that right ?
Regards
Poonam
1. Yes, you are eligible for savings bank account interest deduction upto Rs. 10,000. This does not apply to FD interest. Also, as an NRI, 30.9% TDS on the interest from NRO account is deducted.
2. If you do not have any other income, your total income would be less than 250,000 (basic exemption limit) so you don’t have to pay any taxes in India and would be able to claim the TDS deducted as income tax refund. Thanks.
Hello Jigar,
I have some Indian IT clients who have this query. Are we supposed to charge service tax on services provided to NRI and Foreign companies. These services have been provided outside India. Are they exempt of service still? Please help
I would think so provided the nature of service, place of providing service and payment conditions are met. Please also consider the Softex requirements as well. Thanks.
Greetings of the day Jigar ji, My fathers friend stay in Dubai and is a well to do person there. He is a foreign national. Very recently my father passed away. However my fathers friend wants to send around 250,000 dollars for our well being which is mainly for purchase of a house in Mumbai. Is there any issue if he does so? What is the limit of inward remittance in such case wherein the person is a friend and a foreign national? He will be doing a bank transfer? In such Case is there any scrutiny that we may come under or have to answer? Lastly will this be taxable in the above case? Looking forward for your kind revert. Regards,Hamsa
While you can accept the amount, it would be considered as a gift from non-relative and you would have to include the amount as income in your income tax return and pay tax on the same as per the tax slabs. You can accept gift of only upto Rs. 50,000 from non-relative as a tax-exempt gift. If you receive Rs. 50,001, whole 50001 would be included in your income. Thanks.
I have remitted NRE funds to India and now i want to transfer the same funds to UK. I am still an NRI. Do I have to pay any form of tax ?
Thanks
Willie
No. there is no tax on transfer. The tax is only on the income. Also, the income on NRE account/funds is not taxable in India. There is no restrictions on transfer of NRE funds out of India (UK). Thanks.
We are study abroad consultants in india. We refer indian student’s applications for admission in Foriegn universities in USA,Canada,Australia etc. We have direct agreement with foriegn universities. We get commission from these universities directly in our bank account. These foriegn universities do not have any mediator or office in india. As commissions are coming from abroad directly in our bank account. is it covered under service tax?
There is no service tax on export of service so you need to check in detail if it is covered or not covered under exemption and not taxable. Please consult your CA or your service tax consultant. Thanks.
Dear Mr. Jigar
I’m NRI working in Indonesia. I regularly remit salary to India. I have other source of income from other engineering companies (based in Malaysia,Singapore,Denmark) for which I partially assist them in engineering jobs. They pay me remuneration for the job . Can they directly transfer this money to my NRE account in India from respective country? What are the documents I need from them for produce in India authority.
While the income earned outside India is not taxable in India for NRIs, there is grey area that if an income is received in India, it may become taxable in India. By crediting your any foreign bank account, it can be said that the income was also received outside India. So, for simplicity and removal of any doubt, I would recommend you to first credit the money in a bank account anywhere outside India and then remit it to your NRE account. Thanks.
My cousin is in south Africa he want to transfer 3,00,000 in Indian currency to my account. Whether any tax I have to pay for this transactions
As your cousin is not related to you, it would be considered as a gift from non-relative and would be included in your income. However, if your real uncle gives gift, it would not be taxable in your case. Thanks.
Hi Jigar,
I am a NRI want to transfer 2 crore rupees from middle east working since 2005 abroad for the past 12 years, is there any taxation for this or any formalities with RBI to complete?
please advise?
Thank You.
Best Regards,
Prince
I would assume that you want to transfer funds from outside India (middle east) to India. In that case, there is no taxation. I would recommend you to open NRE account (assuming you would be staying outside India) and transfer the funds. Before transferring, I would recommend contacting the bank for higher forex conversion rate and making sure you get the same. If you need any help in account opening, money transfer or investing, please contact us. Thanks.
Dear Jigar,
I’m working in south korea since, 20th Feb 2017, presently i’m sending part of salary from my local korean bank account to my indian resident savings account. While I’m in south korea, i invested in binary options in a UK company, if they send the profits earned from that investment to my resident savings account directly, will there be any tax complications? As the sender is not my relative & it is also not sent by me. Is this income questionable/illegal? Which documents i need to produce to keep me on safe side. Do i have to mention this income while tax return filing this year, I have to file tax returns as i have investment in secondary market (shares & MF), it is handled by my father.
2. Can i keep my resident bank account while I’m in korea (more than 182 days outside India) & assign my father as power of attorney for that account, as it has some investments (MF, Shares..etc) linked to that account, so, instead of converting it to NRO, can i open a fresh NRO & NRE account for remittance purpose & then, transfer to Resident Account locally as & when needed.
Best Regards,
Ravi.
1. As you have been working in Korea since Feb 2017, you are an NRI and are not allowed to have a resident account.
2. I would recommend to transfer money from UK to Korea account first before remitting to India.
3. You would need to update your KYC as invest only as an NRI. You may open fresh NRO/NRE account but can not have a resident account. Thanks.
hi Jigar,
First of all thank you for the support and providing kind advices.
I have 2 queries as below, I’m an NRI.
1. Apart from my normal salary I do consultation to foreign companies , whether I can ask my cleints to transfer directly to my nre account , whether there will be any implications on this transfers?
2. Recently I have invested in short term debt funds whether I need to pay tax on this during redemption?
1. It would be income on which no tax has been paid as you won’t be paying any tax in India or in country of your residence. I would recommend it to be credited in your country of residence and then remit to India.
2. You may depending on when you sell (short term / long term) and also amount of gain. Thanks.
Dear Sir,
I am an NRI and a postdoctorate in technology Ph.D., working and living in Saudi Arabia for the largest manufacturing company for 17+ years.
I have been out of India since 1995, pursued post-graduate studies from the USA. I was in there until 2001 and relocated to Saudi Arabia. About my current job profile, Apart from my regular job, i conduct various consultancy training, audits across the world during my vacation period ( no issue with my present employer). I have earned substantial income over the years and parked my funds in Indian banks under NRE accounts. I have no rental income from India as I do not have any properties there, hence no taxable income arising from India.
As I understand, revenue generated interest in these banks are 100% tax-free and FEMA compliant. The earnings from personal audits are also parked along with my earnings from current job in these banks.
I have few questions:
Since I have a very good client network across the world, I have been earning forex (US$ & Euros) thru my personal visits to client locations by issuing personal invoices. I have been issuing invoices in my name only. My question is am I liable to pay taxes in India on the income earned by foreign clients? All monies (salaries and consultancy fees) are being transferred directly by my clients into my existing NRE accounts in India.
Please advise if I can continue to receive monies (forex only) from my international client network. I cannot transfer the forex earnings into Saudi bank and then remit to India as per the prevailing restrictions of local banks in SAUDI.
I am taking up consultancy engagement with companies based in U.K, Japan, China and the USA, they will be depositing the consulting fee in Euros / USD into my NRE bank account directly. Since I am an NRI, will I have to pay taxes on this income?
Please advice……
Best regards,
Pramod Kumar, Aithal
Saudi Arabia
Technically, any income earned or received in India is taxed in India. While you are not earning in India (clients outside India), the income is received in India. So it may be taxed in India. This is a grey area and could result in unnecessary procedures, appeal and lengthy legal issue. I would recommend not to transfer the money directly to NRE account in India but to an account outside India (Saudi Arabia or Dubai or Singapore or USA or any country) and then remit the funds to India. This simple step will reduce complications. Please contact us at nri@nareshco.com if you have any question about tax or investment planning. Thanks.
Dear Sir,
Thanks for the valuable feedback, but I would like to again state that what is the issue if I continue to receive monies from my international client network to NRE accounts in india.
I provided a declaration form to SBI upon receiving the funds from one of my clients in Germany. The source of funds was clearly mentioned as consultancy charges. Hence they (SBI) did not raise any objection and funds were transferred smoothly.
Please advise…
Best regards, Pramod
As the funds would have been received in India, it can become taxable in India and you may have to pay tax in India on the consulting income. If you are ready to pay tax on the consulting income in India, it may be okay. However, if you do not want to pay tax on the consulting income in India, it is better if you receive the amount out of India and then remit to your NRE account to avoid any complications. You can remit the same day but better to receive out of India and transfer thereafter. Thanks.
Dear Sir,
I am not able to transfer forex earnings to Saudi Arabia and consequently remit funds to India, due to prevailing restrictions on local banks in Saudi Arabia.
As explained earlier, All my income is by conducting audits, consultancy, training across the globe to foreign clients based in UK, France, Taiwan, Japan, China and the USA.
I issue invoices in my personal name for said consultancy services offered and my employer is aware and allows me for the same.
Hence, I need your valuable advice regarding continuity of receipt of money in Foreign Currency in NRE bank A/c in India from foreign clients in relation to consultancy services offered.
Best regards, Pramod Kumar
You can open an account anywhere – in Dubai or even in EU country, where you will receive funds first and then remit to India. If you transfer funds to India, you can be involved in some controversy. You may have to be ready for long legal battle when you receive any question / notice or decide to include the income and pay tax in India. I would recommend opening account out of India. Thanks.