Know your taxes

Rediff has started a very informative column on taxation. Investment guru A N Shanbhag answers your questions on NRI investment.

Some very complicated queries were tackled in this feature. Not many sites offer taxation answers for NRIs...

I am just copying one of the queries and the answer to it. check out the link for more queries and answers

I am an NRI (US residence) holding an NRE account in Mumbai [ Images ]. I am planning to transfer money from this NRE account into my mother's (who is an Indian resident) regular savings account, also in the same branch. I have the following questions:

1. I believe that this amount is tax-free without any limits. But can you please confirm this for me?

2. Since I will lose repatriability on this amount, is there any other legitimate way of sending money out of India to relatives abroad. For example, I have heard that one is legally allowed to send up to $25,000 per year abroad. Is this true? If so, how would that be reflected on my mother's IT return? Also, what are the tax implications for me?
-- Mohnish

1. Yes, the amount that you transfer to your parents is tax-free without any limit.

2. As per Master Circular, dated July 1, 2006, Indian residents are allowed to remit abroad up to $100,000 per annum for maintenance of close relatives. You will be a close relative of your parents as per the law and hence this should take care of your requirements.

Also, as per latest AP Dir Circular, the $25,000 limit that you refer to has been increased to US$200,000 per financial year and this includes gifts. Therefore, an Indian resident may send as much as $300,000 per annum abroad out of which $100,000 is necessarily to close relatives.

You gifting a sum of money to your mother or vice versa is tax neutral as per current Indian tax laws.