How Resident Family Can Send Money to NRIs Abroad: The USD 250,000 LRS Limit Explained

For a resident Indian parent who wants to fund a son studying in Toronto or a daughter working in Dubai, the single most important number to memorise is USD 2,50,000. That is the ceiling the Reserve Bank of India (RBI) fixes under the Liberalised Remittance Scheme (LRS) for every resident individual in a financial year running April to March, and it applies to the entire menu of permitted current and capital account transactions taken together, including outright gifts and the maintenance of close relatives abroad.

Direction matters more than most families realise. LRS is a resident's tool, and per the RBI LRS FAQ it is available to resident individuals only, never to Non-Resident Indians (NRIs). When money flows the other way — an NRI moving funds out of India — the governing framework is the repatriation route through NRO, NRE and FCNR accounts, not LRS. Confusing the two routes is the most common and most expensive mistake, which is why our NRI repatriation calculator treats the two directions as entirely separate compliance journeys.

This article maps the full path of a rupee that leaves a resident's bank account under the USD 2,50,000 limit and lands in an NRI relative's foreign account. We work through the Foreign Exchange Management Act (FEMA) basis (the statute has been in force since 1 June 2000), the Indian income-tax position under the Income-tax Act 1961, the treatment in the recipient's country of residence with reference to the India-US Double Taxation Avoidance Agreement (DTAA) effective 12 September 1991, and the repatriation mechanics that decide how easily the money can move again later.

FEMA / DTAA Position

FEMA replaced the older FERA regime and came into force on 1 June 2000, shifting India from an "everything prohibited unless permitted" posture to "everything permitted unless prohibited". Under Section 5 of FEMA 1999, current account transactions are generally free, subject only to reasonable restrictions the central government notifies (gambling, lottery and a handful of others). It is on this liberalised footing that RBI introduced LRS on 4 February 2004, initially with a modest USD 25,000 ceiling that has since been revised to USD 2,50,000 per resident per financial year.

The permitted purposes sit in Para 1 of Schedule III of the Foreign Exchange Management (Current Account Transactions) Amendment Rules 2015. Two of those purposes are directly relevant to families supporting NRIs: "gifts or donations" and "maintenance of close relatives abroad". A resident may therefore gift up to the full USD 2,50,000 to an NRI child in a single April-to-March window, or split it across purposes, without seeking any specific RBI approval. The scheme is a per-individual entitlement, so two resident parents can each remit USD 2,50,000, taking a household total to USD 5,00,000 in one financial year.

Every LRS remittance carries hard-wired compliance. A Permanent Account Number (PAN) is mandatory for the resident on all LRS transactions, and the authorised dealer (AD) bank captures the purpose code before releasing funds. Certain uses are barred outright. The table below summarises what the RBI FAQ confirms is inside and outside the LRS perimeter.

Where does a treaty enter a story about gifting? A pure inter-personal gift is not "income" and therefore falls outside the income articles of any DTAA. The India-US treaty (effective 12 September 1991) has no gift article at all. The DTAA becomes relevant only in the next chapter of the money's life: once the NRI invests the gifted funds and starts earning dividends, interest or capital gains sourced back in India, Article 24 of that treaty governs how the residence country relieves double taxation. You can read a plain-English primer in our DTAA glossary entry and the statutory backbone in the FEMA glossary entry.

Tax Treatment in India

The first principle is liberating: the outward gift is not the sender's taxable income. A resident giving USD 2,50,000 to an NRI relative is disposing of already-taxed savings on capital account, so no fresh Indian income-tax charge arises on the remitter merely for sending money. What the AD bank does collect at the point of remittance is tax at source under Section 206C(1G) of the Income-tax Act 1961 on LRS outflows above the notified annual threshold. This is a collection mechanism, not a final tax: the amount reflects in the remitter's Form 26AS and Annual Information Statement (AIS) and is fully creditable against the year's income-tax liability, or refundable if excess. Because rates and thresholds under Section 206C(1G) are revised in Finance Acts, the current figure should always be confirmed on incometax.gov.in before you remit.

For the NRI on the receiving end, the decisive provision is Section 56(2)(x) of the Income-tax Act 1961. Money received from a "relative" — a defined class that includes parents, siblings and spouse — is exempt from tax in the recipient's hands without any monetary ceiling. By contrast, a gift from a non-relative becomes taxable as "income from other sources" once the aggregate in a financial year crosses the statutory Rs 50,000 line. So a parent-to-child LRS gift of USD 2,50,000 is not taxable in India at either end; a same-sized gift from a family friend would be fully taxable for the NRI recipient.

Tax re-enters the frame the moment the NRI earns Indian-source income on those funds. If the relative parks the gift in Indian property and lets it out, rental income is taxable in India and the tenant or agent must deduct TDS — our repatriation guidance notes an effective 31.2 percent rate on NRI rent — which our NRI rental income tax calculator unpacks line by line. Where the payer withholds under Section 195, the mandate confirmed by the research desk is that TDS is applied at the DTAA rate or the Income-tax Act rate, whichever is lower, so a valid Tax Residency Certificate can meaningfully cut the deduction. See the mechanics in our TDS glossary entry and model your net position with the NRI tax calculator.

Two numbers guard against over-taxation of the NRI's Indian income. Long-term capital gains on listed equity are taxed at 12.5 percent (with the annual Rs 1.25 lakh exemption) per the Budget 2024 framework, and the surcharge on income under the new tax regime is capped at 25 percent rather than the 37 percent that applies in the old regime for incomes above Rs 5 crore. The table below sets out the DTAA withholding ceilings the research desk verified for a US-resident NRI.

Tax Treatment Abroad

The residence country, not India, has the final word on how the NRI is taxed, and here the good news usually holds. Most jurisdictions treat a genuine gift received from a relative as non-income to the recipient, mirroring the Indian Section 56(2)(x) logic. What changes across borders is the reporting overlay. A US-resident recipient of a large foreign gift generally owes no US income tax on the gift itself, but must file an informational return (Form 3520) with the Internal Revenue Service once foreign gifts exceed the IRS-notified threshold for the year; the filing is disclosure, not taxation. Similar disclosure regimes exist in the UK, Canada and Australia, so the compliance cost is paperwork rather than a tax bill.

Double taxation only bites on the investment income that the gifted capital later throws off, and this is precisely where Article 24 of the India-US DTAA (effective 12 September 1991) does its work by granting a foreign tax credit in the country of residence. If India has already withheld, say, 15 percent on interest under the treaty, the US resident claims that Indian tax as a credit against the US liability on the same income, so the aggregate burden converges on the higher of the two rates rather than stacking to their sum. The credit is claimed on the residence-country return, supported by the Indian TDS certificate and the Tax Residency Certificate.

The practical warning for families is timing and character. A capital gain that India taxes at 12.5 percent is not "exempt" abroad; the residence country will tax the same gain and then allow a credit for the Indian tax, which means the NRI must reconcile two tax calendars — India's April-to-March financial year against, for instance, a US calendar year. Mismatched years can defer or fragment a credit, so booking the Indian tax and the foreign claim in aligned periods is worth planning around. Our financial year glossary entry explains why the April-to-March cycle drives every Indian deadline in this chain.

Repatriation Mechanics

Once the gift lands abroad it is fully the NRI's money, but the more common question is the reverse: how does an NRI move Indian-sourced funds out again? The answer turns entirely on which account the money sits in. Under RBI master directions, NRE and FCNR account balances — principal and interest — are freely repatriable without any ceiling, because that money originally arrived from abroad. NRO balances, which typically hold India-sourced income such as rent, dividends and sale proceeds, are subject to a hard ceiling of USD 1 million per financial year per individual under the Foreign Exchange Management (Remittance of Assets) Regulations 2016.

That USD 1 million window covers all NRO repatriation combined — property sale proceeds, matured deposits, inheritance and gifts received in the NRO account — and it resets every April, with no cumulative lifetime cap. The route is paperwork-heavy. The remitter files Form 15CA as an online self-declaration on the income-tax portal, and for remittances above Rs 5 lakh a Chartered Accountant must certify tax compliance on Form 15CB before the bank executes the SWIFT transfer. Families should budget CA fees of roughly Rs 5,000 to Rs 15,000 for the Form 15CB certificate and allow two to four weeks for documentation.

Repatriation itself is not a taxable event — it is a transfer of funds already sitting in the account — but the underlying income that built the NRO balance may have been taxable, and the bank verifies clearance through Form 15CA/15CB before releasing money. The table below contrasts the three account types, and you can price a specific transfer, net of FX spread and certification cost, with the NRI repatriation calculator.

The clean strategy for a family that expects to move money in both directions is to keep the plumbing separate. A resident's LRS gift of up to USD 2,50,000 flows out under FEMA Section 5 and lands in the NRI's overseas account or an NRE account; India-sourced income accumulates in NRO and exits, when needed, inside the USD 1 million annual repatriation window with Form 15CA/15CB in hand. Kept distinct, the two routes rarely collide.

FAQ

Can a resident parent gift the full USD 2,50,000 to an NRI child in one year?

Yes. "Gifts or donations" and "maintenance of close relatives abroad" are both permitted purposes under Para 1 of Schedule III of the FEM (Current Account Transactions) Amendment Rules 2015, and the USD 2,50,000 LRS ceiling per resident per financial year (April to March) can be used entirely for this. Two resident parents can each remit USD 2,50,000, so a household can move up to USD 5,00,000 in one year.

Is the gift taxable for the NRI who receives it in India?

No, provided the giver is a "relative" as defined in Section 56(2)(x) of the Income-tax Act 1961 — the exemption for relative-to-relative gifts has no monetary ceiling. A gift from a non-relative becomes taxable for the NRI once the yearly aggregate crosses the statutory Rs 50,000 threshold.

Does the NRI's country of residence tax the gift?

Usually not as income, since most jurisdictions treat genuine family gifts as non-taxable receipts. A large foreign gift may still trigger a disclosure filing — for example IRS Form 3520 in the United States above the notified threshold — but that is reporting, not tax. Confirm local rules before the transfer.

Why can an NRI not simply use the USD 2,50,000 LRS limit?

Because LRS, per the RBI FAQ, is available to resident individuals only. An NRI moving Indian-sourced money abroad uses the repatriation route instead: freely for NRE and FCNR balances, and up to USD 1 million per financial year for NRO balances under the FEM (Remittance of Assets) Regulations 2016.

What tax is collected when a resident sends the money?

The AD bank collects tax at source under Section 206C(1G) of the Income-tax Act 1961 on LRS remittances above the notified annual threshold. It is fully adjustable against the remitter's income-tax liability and refundable if excess, so it is a cash-flow timing cost rather than a permanent tax. Verify the prevailing threshold and rate on incometax.gov.in.

How is the NRI taxed if the gifted money is invested back in India?

Indian-source returns are taxable in India: rental income attracts TDS (an effective 31.2 percent on NRI rent), and listed-equity long-term capital gains are taxed at 12.5 percent above the Rs 1.25 lakh annual exemption under the Budget 2024 framework. Section 195 withholding applies at the DTAA rate or the Act rate, whichever is lower, and a Tax Residency Certificate secures the treaty rate.

Will double taxation apply to that Indian income abroad?

Only in a relieved form. Article 24 of the India-US DTAA (effective 12 September 1991) grants a foreign tax credit in the country of residence for tax already paid in India, so the combined burden settles at the higher of the two rates rather than the sum. Indian capital gains are never treated as "exempt" abroad — India taxes them and the residence country then allows a credit.