Sending Money to NRI Children: How Resident Families Use the LRS USD 250,000 Window for Gifts and Maintenance

Every year, thousands of resident Indian parents send money to a son or daughter who has moved to the US, the UK, the UAE, Canada, Singapore or Australia. Some of it is a one-off gift for a house deposit; some of it is regular maintenance while the child settles in. Both routes run through one framework: the Reserve Bank of India's Master Direction on the Liberalised Remittance Scheme (LRS), last updated on 6 September 2024, which caps what a resident individual may send abroad at USD 2,50,000 per financial year.

This guide explains how that USD 2,50,000 window works for gifts and maintenance to NRI relatives, what the Income-tax Act says about the money in the hands of the giver and the recipient, how the six major tax treaties interact with any income the gifted money later earns, and how the rupee-gift route into an NRO account differs from a straight foreign-currency remittance.

FEMA / DTAA Position

The statutory base

Remittances out of India are governed by the Foreign Exchange Management Act, 1999. FEMA Section 3 restricts any unauthorised dealing in foreign exchange; Section 5 makes current-account transactions generally permissible, subject to a short list of restricted purposes; and Section 6 requires RBI permission for capital-account transactions unless they are specifically permitted. The LRS is the RBI's standing permission that lets a resident individual remit up to USD 2,50,000 a year without seeking case-by-case approval.

What the LRS Master Direction allows

According to the RBI Master Direction (as updated on 6 September 2024), the USD 2,50,000 limit applies per resident individual, per financial year (April to March), and covers permitted current-account and capital-account transactions combined. A parent who has already sent USD 1,00,000 for a child's overseas property purchase in a year has USD 1,50,000 left for gifts or maintenance in that same year, not a fresh USD 2,50,000.

Three paragraphs of the Direction matter most for families:

1. Para 7(e), maintenance of relatives abroad. A resident may remit up to USD 2,50,000 per financial year towards the maintenance of close relatives living outside India.
2. Para 7(b), gifts. A resident may remit a gift to a person resident outside India within the same USD 2,50,000 limit.
3. Para 19, rupee gifts. A resident may make a gift in Indian rupees to an NRI or PIO relative by crossed cheque or electronic transfer, credited to the recipient's NRO account. The rupee amount is converted at the prevailing rate and counts toward the same USD 2,50,000 limit.

Para 6 separately permits a resident to extend a rupee loan to an NRI relative as a capital-account transaction, again within the overall limit. Any amount above USD 2,50,000 needs prior RBI permission, according to the Direction.

Who cannot use the window

The LRS is available only to individuals. According to the RBI Direction, corporates, partnership firms, Hindu Undivided Families (HUFs) and trusts cannot remit under LRS. A family that holds savings in an HUF must first ensure the money is held by an individual member before it can be gifted abroad under the scheme. Because each resident individual carries a separate limit, a household of four resident adults has four separate USD 2,50,000 allowances, or USD 10,00,000 in aggregate, provided each remittance is genuinely funded by the person sending it.

One restriction worth knowing

The Direction (para 4) does not permit foreign-currency gifts to be credited to a resident's own overseas foreign-currency account. In practice, the gift must go to the relative abroad (para 7(b)) or to the relative's NRO account in rupees (para 19); it cannot be parked in an overseas account held by the resident sender and labelled a gift.

Does a DTAA say anything about gifts?

India's Double Taxation Avoidance Agreements allocate taxing rights over income: interest, dividends, capital gains, royalties. A transfer of capital from parent to child is not income in itself, so the treaties do not address the gift directly. They matter for what the gifted money earns afterwards. For example, interest on an NRO deposit funded by a rupee gift is Indian-source income, and the treaty rate on interest applies; see the DTAA table in the next section.

Tax Treatment in India

For the resident giver

Neither the LRS remittance nor a para 19 rupee gift is a deductible expense for the giver, and the giver pays no income tax on making the gift. Tax collected at source (TCS) can, however, apply to LRS remittances above a threshold, at a rate that depends on the purpose of the remittance. TCS is not a separate tax; it is credited against the giver's final liability when the return is filed. Thresholds and rates have been revised by successive Finance Acts, so confirm the figure applicable on the date of remittance on the Income Tax Department portal before sending a large sum. Our TCS glossary entry explains the mechanism.

For the NRI recipient

Income-tax law treats a gift received from a "relative", as that term is defined in the Act, as outside taxable income. A parent-to-child gift therefore does not create a tax charge in India for the child. What does create a charge is any income the gift later generates in India. Two common cases:

• NRO interest. If a rupee gift sits in the child's NRO account or an NRO fixed deposit, the interest is taxable in India. Under Section 195 of the Income-tax Act, 1961, the bank withholds tax at the DTAA rate or the rate in the Act, whichever is lower, provided the recipient furnishes the treaty paperwork.
• Capital gains. If the gifted rupees are invested in listed Indian equity, long-term gains are taxed at 12.5% above an annual exemption of Rs 1,25,000, and short-term gains at 20%, under the rules applicable since Budget 2024 (23 July 2024).

Treaty withholding rates on income the gift later earns

Two points from this table are frequently misreported. First, capital gains under these treaties are not exempt: India retains taxing rights on gains from Indian shares, at 12.5% for long-term gains. Second, the lower 15% dividend rate in the US and Canadian treaties applies only where the recipient holds at least 10% of the voting stock; a portfolio investor faces 25%. Run the numbers on the NRI tax calculator before choosing between an NRO deposit and other investments.

Rebate and cess

Health and education cess of 4% is levied on tax plus any surcharge for FY 2025-26. The Section 87A rebate (up to Rs 60,000 in the new regime for FY 2025-26, on income up to Rs 12 lakh) is available only to resident individuals, so an NRI child cannot use it to wipe out tax on modest NRO interest.

Note that the section numbers quoted here are those of the Income-tax Act, 1961. Readers dealing with a later tax year should confirm the corresponding provision on indiacode.nic.in or the Income Tax Department portal.

Tax Treatment Abroad

Gift receipt in the country of residence

How the child's country of residence treats a gift from an Indian parent is a matter of that country's domestic law, not the India treaty. Several jurisdictions impose information-reporting duties on large gifts received from foreign persons even where no tax is due, and the thresholds change. An NRI who receives a sizeable para 7(b) remittance should check the reporting rules of their tax authority in the year of receipt, and keep the bank advice and a signed gift letter dated on the day of transfer.

Foreign tax credit on income from gifted money

Where the gifted money earns Indian income (for example NRO interest withheld at 15% for a US resident), the country of residence will usually tax the same income again as part of worldwide income. The treaty then gives relief:

• United States: Article 24 of the India-US treaty provides a foreign tax credit in the country of residence.
• Australia: Article 23 adopts the credit method: both countries tax, then Australia offsets the Indian tax.
• Canada: relief is given through Section 126 of Canada's Income Tax Act.
• UAE: a Tax Residency Certificate requires proof of UAE establishment before the 12.5% interest rate can be claimed in India.
• Singapore: the Limitation of Benefits clause requires substantial economic presence to access treaty rates.

The credit is generally limited to the lower of the Indian tax actually paid and the foreign tax on that income, so withholding above the treaty rate can leave tax stranded. Our foreign tax credit calculator models this for each of the six countries.

Worked example

A resident mother in Pune gifts Rs 20 lakh under para 19 to her daughter's NRO account; the daughter is a US tax resident. The deposit earns Rs 1,40,000 of interest in a year. If the daughter furnishes a TRC and Form 10F, Section 195 lets the bank withhold at the 15% treaty rate, or Rs 21,000, instead of the higher domestic rate. She then reports the Rs 1,40,000 in her US return and claims the Rs 21,000 as a foreign tax credit under Article 24. The Rs 20 lakh gift itself is not taxed in India in her hands, and it uses up roughly its US-dollar equivalent of the mother's USD 2,50,000 LRS limit for that financial year.

Repatriation Mechanics

Foreign-currency remittance versus rupee gift

The route the resident chooses determines how easily the child can move the money later.

A para 7(b) or 7(e) remittance lands directly in the child's overseas account, so nothing further is needed to move it. A para 19 rupee gift, by contrast, sits in the child's NRO account, which is non-repatriable by default. To take it abroad, the child must use the NRO remittance-of-assets facility, which is capped at USD 1 million per financial year and requires the Form 15CA/15CB certification process. We covered that USD 1 million cap in detail in our NRO repatriation guide.

Why the NRE route is closed

An NRE account may be credited only with funds of foreign origin or with repatriable inward remittances. A rupee gift from a resident parent is local money, which is why para 19 of the Direction specifies an NRO credit. Crediting a resident's gift to an NRE account would breach FEMA, regardless of the amount.

Step-by-step for a para 7(e) maintenance remittance

1. Confirm the limit. Add up every LRS remittance the sender has made since 1 April of the current financial year; the total including this one must stay within USD 2,50,000.
2. Fill Form A2 at the authorised dealer bank, choosing the "maintenance of close relatives" purpose code.
3. Provide PAN. The bank needs the remitter's PAN to track the limit and apply TCS, if any.
4. Keep the evidence. Retain the bank's advice, the A2 copy and a note of the relationship, dated on the day of remittance.

The remittance cost calculator compares bank spread and fees for the transfer, while the repatriation calculator helps when the money is being sent back out of an NRO account.

FAQ

Is the USD 2,50,000 LRS limit per family or per person?

Per resident individual, according to the RBI Master Direction updated 6 September 2024. Each parent has a separate USD 2,50,000 limit each financial year (April to March). HUFs, firms, corporates and trusts cannot use LRS.

Does a rupee gift to my son's NRO account count towards LRS?

Yes. Para 19 of the LRS Master Direction permits a rupee gift to an NRI or PIO relative by crossed cheque or electronic transfer credited to the NRO account, and the amount counts toward the USD 2,50,000 limit.

Can I send both a gift and maintenance to my daughter in the same year?

Yes, under para 7(b) and para 7(e) respectively, but the two together, plus any other LRS remittance you make that year, must stay within USD 2,50,000. Sending more requires prior RBI permission.

Will my NRI child pay Indian tax on the gift?

A gift from a relative, as defined in the Income-tax Act, is not taxed in the recipient's hands. Income the gift later earns in India, such as NRO interest, is taxable, with Section 195 withholding at the lower of the DTAA rate (15% for US, UK, Canada, Singapore and Australia residents; 12.5% for UAE residents) or the domestic rate.

Can I lend money to an NRI relative instead of gifting it?

Yes. Para 6 of the LRS Master Direction permits a resident individual to extend a rupee loan to an NRI relative as a capital-account transaction, within the same USD 2,50,000 annual limit.

Is capital gains on gifted money invested in Indian shares exempt under the DTAA?

No. Under the US, UK, UAE, Canada, Singapore and Australia treaties, India retains the right to tax gains from Indian shares, and long-term gains on listed equity are taxed at 12.5% above Rs 1,25,000 a year.

This article is general information based on the RBI's LRS Master Direction and the Income-tax Act, and is not individual tax or legal advice. Confirm current TCS thresholds and your country's gift-reporting rules before remitting.