Working with international clients is exciting, but dealing with taxes? Not so much!

If you're providing services abroad, you might be worried about getting taxed twice - once in the client's country and again in India. For instance, when a US client pays you, they might deduct their local tax, and India wants its share, too!&nbsp;

This is where the Foreign Tax Credit (FTC) comes to your rescue. And to claim it, you need to fill out Form 67.&nbsp;

In this guide, we'll walk you through the steps of filing Form 67, and how to claim a Foreign Tax Credit for taxes you've already paid abroad. No more paying twice for the same income!

What is the Foreign Tax Credit in Form 67?&nbsp;

Foreign Tax Credit is a mechanism that allows you to claim credit in India for taxes you've already paid in another country on your foreign income. It's designed to prevent double taxation - paying full taxes twice on the same income. You must file Form 67 with the Indian tax department to claim this credit.

It's like getting a discount on your Indian taxes for the tax you've already paid in another country.&nbsp;

Here's a quick example to make it clearer:

Let's say you're a freelance graphic designer in India who did work for a United States company:

Using Form 67, you can claim credit for the ₹62,250 already paid in the US:

Final tax you pay in India: INR1,24,500 - INR62,250 = INR 62,250

This way, you're not paying full tax twice on the same foreign source income. Just remember to file Form 67 before your tax return and keep proof of the foreign tax you paid so that you can claim your foreign tax credit.

Overview of Foreign Tax Credit in India&nbsp;

India has set up specific rules to help you claim credit for taxes paid abroad - it's like getting a refund on your Indian taxes for what you've already paid in other countries.&nbsp;

India manages FTC through two main sections of tax law:

<a href="https://kb.icai.org/pdfs/PDFFile5b4f2a767133a8.00550566.pdf">Section 90</a> - For countries with tax agreements

Like having a mutual discount arrangement, India has DTAAs (think of them as tax-saving partnerships) with many countries, including the US, UK, Canada, Australia, and Germany.

Let's take the India-US agreement, for example. If you work with US clients, they might deduct a maximum of <a href="https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-gbt-us-llc-eligible-for-india-us-tax-treaty-benefit-noexp.pdf">15%</a> tax on your payments (lower than usual rates!). You can claim this as credit in India. This agreement makes it easier for freelancers and businesses to work across borders without worrying about paying hefty taxes twice.

Remember: These agreements are like a VIP pass—they give you special tax benefits that you wouldn't get otherwise!&nbsp;

Section 91 - For countries without agreements

You can still claim credit for taxes paid, but following Indian tax rules.&nbsp;

Here's a simple example for Section 91: Suppose you earn ₹3,00,000 from a property in Brazil. You paid ₹75,000 (25%) tax there and owe ₹90,000 (30%) in India. You can claim the lower amount (₹75,000) as credit, so you'll only pay ₹15,000 more in India.

Think of it as a general credit system instead of a particular arrangement.&nbsp;

Rules for Claiming Foreign Tax Credit in India (Rule 128)

For example, If you paid INR 10,000 abroad but the Indian tax would be INR 8,000, you can claim INR 8,000

When claiming your tax credit, remember that only the actual tax you paid counts - any late fees, penalties, or interest charges won't qualify for credit. If you're working with clients from different countries, you must keep each country's calculations separate.&nbsp;

Stay away from claiming credit for any taxes that are under dispute, as this could cause problems later. Lastly, always convert your foreign earnings to rupees using official exchange rates, as the tax department won't accept any other conversion method.

The point is to avoid paying full tax twice on the same income while keeping things fair for both countries. You wouldn't want to pay the total price for the same item at two different stores!&nbsp;

Documents Required to Claim Foreign Tax Credit with Form 67 in India

When claiming FTC with Form 67, you'll need some paperwork to prove your foreign income and taxes paid—think of it as keeping receipts for your tax deductions.&nbsp;

Form 67: How to Claim Foreign Tax Credit with Form 67?&nbsp;

To claim the Foreign Tax Credit (FTC) in India using Form 67, a resident taxpayer must follow a structured process and provide specific documentation. Below are the steps:&nbsp;

Step 1: Log in to the e-filling portal of the Income Tax department using your valid user ID and password. If you are a registered user, sign in directly.

Step 2: On the dashboard, click on e-File, then select Income Tax Forms, and choose File Income Tax Forms.

Step 3: On the next page, find and select Double Taxation Relief (Form 67).

Step 4: Select the relevant Assessment Year (A.Y.) for which you claim the FTC and click Continue.

Step 5: Click on Let’s Get Started on the instructions page.

Step 6: Complete the form with all required details, including personal and other basic information and foreign income details. Ensure accuracy before proceeding.

Step 7: After completing the form, click Preview to review all entered information.

Step 8: Attach necessary documents such as proof of payment for foreign tax, TDS certificates, and other relevant documentation.

Step 9: Click on Proceed to e-Verify after verifying your details.

Step 10: Confirm submission by clicking ‘Yes’ on the confirmation message. You will be redirected to the e-verify page.

After successful e-verification, a success message will appear along with a transaction ID and acknowledgement number for future reference. A confirmation email will also be sent to your registered email address.

For Assessment Year 2024-25, you must file Form 67 by December 31, 2024, before filing your Income Tax Return (ITR). Think of it like getting your paperwork in order before the main tax filing - you can't claim foreign tax credit without submitting Form 67 first, so mark this deadline on your calendar!&nbsp;

Form 67 is divided into four main parts. Here's what each part needs:

What happens if you don't file form 67?&nbsp;

Not filing Form 67 could mean saying goodbye to your foreign tax credit - you might end up paying tax twice on the same income! However, there's some good news: recent rules are more flexible. Even if you miss the initial deadline, you can file Form 67 until the end of the assessment year (for AY 2024-25, December 31, 2024).

Think of Form 67 as your ticket to avoiding double taxation - it might seem like a paperwork hassle, but it's worth it! And here's a pro tip: when receiving payments from abroad, using platforms like Skydo can make your life easier. We provide all the payment documentation you need for Form 67, like <a href="https://www.skydo.com/blog/all-you-need-to-know-about-firc-a-complete-guide">FIRC</a> and clear transaction records, right at your fingertips. Remember, whether you're a freelancer or business owner, staying organized with your foreign return of income documents is half the battle won!&nbsp;

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Foreign Tax Credit with Form 67

W8 forms are IRS (Internal Revenue Service)&nbsp; forms that non-American individuals and businesses, including those in India, need to file if they’re earning from U.S. clients or employers. These forms help confirm your country of residence for tax purposes so that you can benefit from a reduced tax withholding rate or avoid double taxation.&nbsp;

With global work becoming the norm, many of us in India are earning from U.S. clients or companies. But figuring out international tax rules can feel like a maze, and without the right forms, you could lose more of your income to taxes. That’s where a W8 form comes in—they help you keep more of what you earn by reducing unnecessary U.S. tax withholdings. In this guide, we’ll walk you through W8 forms, so you can stay compliant and avoid losing out on your hard-earned income.

W8 forms are IRS forms that, Indian residents and companies earning from the US, must complete to qualify for a reduced U.S. tax withholding rate on income earned from U.S. sources. Although the IRS issues these forms, they aren’t submitted directly to the IRS. Instead, they are provided to the payer or withholding agent handling your U.S. income - basically your client or employer in the US.

Typically, your payer will ask you to submit the relevant W8 form before disbursing any payment. This ensures they apply the correct withholding rate as per U.S. tax treaties. Submitting the form to your payer in advance helps you avoid unnecessary tax deductions and ensures smoother payment processing.

Here’s a simple example: Imagine you’re an Indian resident working remotely for a U.S.-based company and receiving payment for your services. Although the payment comes from the U.S., since you’re performing the work outside the U.S., it’s considered foreign-sourced income by the US tax authorities. This means it’s generally not subject to U.S. tax withholding. If you were based in the US, your employer would deduct taxes from your income before paying you. At the end of the year, you would need to file a tax return to report your earnings and taxes paid.

To certify your foreign status as an Indian resident and avoid any automatic U.S. tax deductions, you would submit Form W8BEN to your employer. This form confirms that your income is foreign-sourced and only taxable in India, not the U.S

In the following section, we’ll break down the different types of W8 forms and how the U.S.-India tax agreement impacts your tax obligations.

W8 forms are filled by individuals or entities who aren’t US residents, but earn income from the U.S. This can include Indian freelancers and full-time employees working remotely or on-site, Indian investors in the US market, real estate owners having and earning from property in the US, Indian students, Indian businesses and non-profit organisations and more.&nbsp;

Here are some common income types that require a W8 form:

If you don’t submit the required Form W8, your income could be<a href="https://www.irs.gov/instructions/iw8ben"> taxed at 30% </a>under US tax laws. As an Indian resident, this same income would also be taxed in India, leading to double taxation.

What are the different types of W8 Forms?&nbsp;

There are 5 different types of W8 Forms depending on their usage

Form W8BEN ("Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting") must be submitted by Indian individuals who receive certain types of income in the United States including royalty/passive income.&nbsp;

The form, sometimes referred to as a "certificate of foreign status," establishes that the individual is a foreign person earning from the US. You need to submit Form W8BEN when requested by the withholding agent or payer whether or not you are claiming a reduced rate of or exemption from the 30% tax rate.&nbsp;

Here’s what Form W8BEN looks like :&nbsp;

You can also download <a href="https://www.irs.gov/pub/irs-pdf/fw8ben.pdf">Form W8BEN right here</a>

The W8BEN-E form serves a similar purpose as the W8BEN but is specifically designed for foreign businesses and entities rather than individuals. Like individuals, income earned by foreign entities from U.S. sources is also typically subject to a 30% withholding tax. However, by submitting a correctly completed W8BEN-E, Indian businesses will qualify for a reduced withholding rate as per the India-US Income tax treaty.&nbsp;

Here’s what the first page of Form W8BEN-E looks like:

You can download the entire<a href="https://www.irs.gov/pub/irs-pdf/fw8bene.pdf"> Form W8BEN-E right here</a>

Form W8ECI is for Indian individuals and entities conducting business in the U.S. and earning income directly connected to that business—known as ‘effectively connected income’ (ECI). The key benefit of ECI is that it’s taxed at a lower rate than non-business income like interest or dividends.&nbsp;

You can <a href="https://www.irs.gov/pub/irs-pdf/fw8eci.pdf">download Form W8ECI right here</a>

Form W8EXP is for foreign entities like governments, banks, and nonprofits to claim tax exemptions or reduced withholding on U.S. income

<a href="https://www.irs.gov/pub/irs-pdf/fw8exp.pdf">You can download Form W8EXP right here</a>

Form W8IMY is for foreign intermediaries like banks, brokers, and mutual funds to certify their status and claim reduced tax withholding on U.S. income received on behalf of clients. It ensures proper tax compliance and smooth handling of client obligations.&nbsp;

<a href="https://www.irs.gov/pub/irs-pdf/fw8imy.pdf">You can download the full Form W8IMY right here</a>

If you're an Indian freelancer, service provider, or exporter earning from U.S. clients, the W8BEN or W8BEN-E forms are likely the ones you need. Filling out the right W8 form is crucial—not just to stay compliant with U.S. tax laws but also to avoid unnecessary or double taxation on your income.&nbsp;

What is the Difference Between Form W8BEN and Form W8 BEN-E?

For most Indian residents, and businesses with U.S.-sourced income, the relevant forms are Form W8BEN and Form W8BEN-E. The key difference between them is: Form W8BEN is for individuals, while Form W8BEN-E is for entities (such as businesses) receiving U.S.-sourced income.

Which Countries Have an Income Tax Treaty with the US?

The United States has income tax treaties with various foreign countries, allowing residents (not necessarily citizens) of those countries to benefit from reduced tax rates or exemptions on certain U.S.-sourced income. These tax benefits vary by country and type of income.

If a tax treaty applies to your income, filing the appropriate W8 form can help you claim these benefits and reduce unnecessary U.S. tax withholding. However, if your income type isn’t covered by a treaty—or if no treaty exists between your country and the U.S.—you’ll generally be taxed at the standard rate, as outlined in <a href="https://www.irs.gov/forms-pubs/about-form-1040-nr">Form 1040NR (U.S. Nonresident Alien Income Tax Return) instructions.</a>

Tax treaties often work both ways, meaning U.S. residents earning income in treaty countries may also qualify for similar tax benefits abroad, such as credits, deductions, and reduced tax rates. Some of the countries with which the US has income tax treaties include:&nbsp;

<a href="https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z">You can find the full list of countries right here</a>

India-United States International Income Tax Treaty

The India-U.S. Income Tax Treaty has been effective since 1st&nbsp; JANUARY 1991 and it is an agreement that helps Indian and U.S. residents avoid being taxed twice on the same income. It’s designed to make earning across borders easier, fairer, and more financially efficient.

Double Taxation Avoidance Agreement (DTAA)

If you’re an Indian resident earning income from the U.S., or vice versa, the treaty can provide tax credits to prevent double taxation. For instance, if you’ve paid tax on U.S. income, you may be eligible for a credit in India on that same income.

The treaty reduces withholding tax rates on certain U.S.-sourced income, like dividends, interest, and royalties. For example, instead of the standard 30% tax on dividends, Indian residents often qualify for a reduced 15% rate.

Business Profits and Permanent Establishment (PE):

If you run a business, the treaty ensures you won’t be taxed in the other country unless you have a significant, ongoing presence (called a "permanent establishment" or PE) there.&nbsp;

The treaty also allows India and the U.S. to share tax information, which helps prevent tax evasion and promotes transparency.

File a W8 Form: If you’re an Indian resident earning income from the U.S., submitting a W8 form can qualify you for a lower tax rate under the treaty.

Claim Tax Credits: When filing taxes in India, you can often claim a credit for taxes paid/withheld in the U.S., reducing your total tax burden.

In short, the India-U.S. Tax Treaty makes it easier to earn across borders without paying double, offering lower tax rates on certain incomes and supporting a fairer tax process for cross-border business and work.

How do I fill out a W8 Form as an Indian?

If you’re an Indian earning income from the U.S., the first step is figuring out which W8 form applies to you. The type of W8 form you need depends on whether you’re an individual or a business, and the type of income you’re receiving. 

As we’ve mentioned, for Indian residents and businesses Form W8BEN and Form W8BEN-E are what will be most relevant respectively.&nbsp; If you’re working with a U.S.-based employer or client, they may ask you to complete a W8 form to confirm your foreign status.

 Additionally, if you’re investing in U.S. stocks through a brokerage platform, the platform might also require this form.

How to fill Form W8BEN and Form W8BEN E?&nbsp;

Here’s a quick snapshot of how to fill Form W8BEN

Submit the completed form to your employer/client with accurate details to avoid delays.

Filling out Form W8BEN-E is similar to Form W8BEN but is designed for Indian businesses. It requires additional details about the business, such as its structure and tax status.&nbsp;

Here's a <a href="https://www.skydo.com/blog/filing-w-8ben-and-w-8ben-e-a-guide-for-indian-freelancers-and-businesses">detailed guide to fill Form W8 BEN and W8 BEN E</a> as Indian freelancers and businesses

W8 forms are valid from the date they’re signed until the end of the third calendar year following that date. For example, if you sign on April 15, 2024, it will remain valid until December 31, 2027, unless there are changes in your circumstances.

The benefits of filing the correct W8 Form include:

What Happens If You Don’t File a W8 Form?

While there’s no direct penalty for not filing a W8 form, you’ll miss out on valuable tax benefits. Without a W8 form, your U.S.-sourced income will automatically be taxed at 30%, as per U.S. regulations. By submitting the correct W8 form, you can qualify for lower tax rates on certain income types under applicable tax treaties.

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Receiving payments from the U.S. to India can be a hassle—and costly too. Banks often apply multiple fees, including forex markups, giving you a lower exchange rate than the live market rate, which cuts into your earnings. On top of that, getting payments on time can involve endless follow-ups with your bank.

With Skydo, it’s different. Once you've filled out the W8 form, you can receive payments seamlessly via Skydo. We provide international virtual accounts in the U.S., allowing your U.S. clients to pay you locally—no SWIFT charges involved. Plus, Skydo converts your payments at live forex rates with zero markups, so you keep more of what you earn. We’re ISO-certified, RBI-compliant, and we provide free, instant FIRAs for every transaction.

If you're a Skydo user, our Customer Support team can even help you fill out your W8 form. <a href="https://www.skydo.com/contact-us/support">Click here </a>to get in touch with our support team.

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W8 Form

The Liberalised Remittance Scheme (LRS), introduced by the Reserve Bank of India (RBI) in 2004, transformed the way Indians send money abroad. Before LRS, transferring funds to support a student studying abroad or helping a relative was a cumbersome process filled with complex rules and lengthy procedures. With LRS, sending money abroad has become simpler and more accessible, especially for purposes like education, travel, and investments.

In this blog, we’ll explore everything about LRS, including its limits, permissible uses, tax implications, and how it simplifies outward remittance for Indian residents.

What is Liberalised Remittance Scheme (LRS)?&nbsp;

The Liberalised Remittance Scheme is a straightforward way for Indian residents to send money abroad. It allows you to transfer USD 250,000 each financial year without any hassles.&nbsp;

LRS is a part of the <a href="https://enforcementdirectorate.gov.in/fema">Foreign Exchange Management Act (FEMA)</a> passed in 1999. The FEMA regulations set the guidelines for foreign exchange management, in other words, how money flows in and out of India. In the case of LRS, it oversees how Indians remit money outside India.&nbsp;

LRS is open to all resident individuals in India, including minors. If a minor is making a remittance, their legal guardian needs to sign the declaration form to authorize it.

You can use LRS for a variety of purposes:

You can use LRS for capital and current account transactions within the overall limit of USD 250,000. For example, you can use LRS to pay USD 10,000 as education fees abroad and invest USD 30,000 in foreign stocks. Both are permitted transactions and do not breach the prescribed limit.

Here are three quick highlights about LRS that you should know:

Indian residents including minors can send money abroad under LRS. The sender must have a valid PAN card, a bank account in India and a passport. For minors sending money abroad, their legal guardian needs to sign the declaration form to authorize it.

However, note that LRS is not available for a corporate entity, partnership firm, HUF (Hindu Undivided Family), etc.&nbsp;

Which Transactions are Permissible Under LRS?

Here is the list of permissible current account transactions and capital account transactions under LRS:

Which Transactions are Prohibited Under LRS?

While the Liberalised Remittance Scheme (LRS) offers flexibility for sending money abroad, there are strict rules about what you cannot use it for. Here's a breakdown:

What are the RBI Guidelines for Outward Remittance?

In addition to what is permitted and prohibited under LRS, you must be mindful of the RBI guidelines for outward remittances. According to the RBI guidelines, outward remittance can be done via demand draft or opening an overseas bank account.&nbsp;

If you’re planning to do the latter, here are the steps you must follow:

Pick one branch of the AD bank to handle all your remittances under LRS for better tracking and compliance. You can check out the <a href="https://www.skydo.com/blog/compliance-guideline-for-inward-remittance">RBI guidelines for inward remittance right here.</a>

If you’re investing money overseas through LRS, then your profits from investments are taxable if the holding period:

Short-term (less than 2 years): According to the regular<a href="https://www.skydo.com/blog/tax-slabs-2023-24"> income tax slab</a> rates

If your remittance amount is more than INR 700,000, then you’re liable to pay a 5%<a href="https://www.skydo.com/blog/tcs-on-foreign-remittance"> TCS</a> (Tax Collected at Source). You can claim this TCS as a refund while filing Income Tax Returns (ITR) using Form 26 AS.

As LRS makes outward remittances a lot simpler, here are some of its biggest benefits:

This is probably the biggest benefit of LRS. With more than<a href="https://onestep.global/overview-of-the-indian-study-abroad-market/#"> 1 million</a> Indian students expected to travel abroad for overseas education in 2024, LRS will be their go-to channel to receive money from their families. This way they can take care of their tuition fees and living expenses without affecting their education.

LRS is convenient for those who travel overseas frequently. They could use it to pay for tickets, hotels, and other travel-related expenses

An investor could take advantage of LRS to diversify their investments abroad. They can invest in shares, mutual funds, bonds, and real estate to maximize their returns

LRS is the ideal avenue if you want to give gifts to your family members or relatives staying overseas. Likewise, you can also make donations to charitable organizations based outside of India

Medical treatments overseas are expensive and often come unannounced. But with the help of LRS, you can transfer money and pay for the bills in the medical institute. It’s also a payment option for those patients who have travelled abroad for specialized treatment

You can also send money to your relatives via LRS to help them meet their living expenses. This is highly useful when they’re going through financial difficulties.&nbsp;

What Happens if You Need to Remit More Than USD 250,000?

If you need to remit beyond the USD 250,000 limit under LRS, there are specific exceptions:

Always ensure you meet the necessary conditions or secure RBI approval for larger remittances.

Receive Foreign Payments in India seamlessly with Skydo

The Liberalised Remittance Scheme (LRS) streamlines outward remittances for resident Indians. As LRS falls under FEMA and operates within the RBI guidelines, it is one of the safest and most trustworthy solutions for sending money abroad. This is a huge relief for students studying overseas as their families can transfer money without hassles. The same applies to medical treatments in foreign lands or to help relatives meet their daily expenses.

Like LRS streamlines outward remittance, Skydo simplifies receiving international payments in India. It offers virtual accounts that allow you to receive money from international clients as if they’re making a local transfer. So when your clients make payments to your virtual accounts, they don’t have to incur the high costs like SWIFT fees associated with international payments.

In addition to that, your payments are converted to local currency based on live exchange rates so that you get the best value. Whether you’re an exporter or a freelancer, Skydo is the right partner to grow your business overseas.&nbsp;

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A well-developed inward remittance infrastructure is essential for India’s economic growth. It makes it easy for exporters to earn foreign exchange and individuals to receive money from their family members abroad

But the infrastructure must be secure and prevent attacks from harmful money laundering and illegal activities like terrorism financing. The Reserve Bank of India (RBI) takes up that responsibility. It actively monitors foreign exchange transactions in India and establishes guidelines to safeguard the economy from such threats.&nbsp;

This blog post dives deep into the RBI guidelines and uncovers its effect on personal and business international remittances.

What are the RBI and FEMA guidelines for inward remittance in India?

Before we head to the FEMA guidelines here is a primer on FEMA. FEMA is an abbreviation for the Foreign Exchange Management Act passed in the parliament in 1999.

The FEMA oversees cross-border payments in India and sets up guidelines for foreign trade. The RBI implements these guidelines and establishes the legal framework for all businesses and individuals engaged in foreign trade and services.&nbsp;

Here is the list of FEMA guidelines that cover the most important aspects of compliance in inward remittance in India:

Only specific financial institutions are authorised by <a href="https://enforcementdirectorate.gov.in/fema">RBI u/s 10 (1) of FEMA</a>., 1999 to deal in foreign inward remittances and are referred to as Authorized Dealer Category I (AD Cat I) banks.&nbsp;

These banks buy and sell foreign currency to facilitate international transactions. They also oversee and report all inward remittances to RBI through the <a href="https://www.skydo.com/blog/understanding-edpms-full-form-and-its-essential-role-in-export-management">Export Data Processing and Monitoring System (EDPMS)</a>.&nbsp;

Foreign Inward Remittance Certificate (FIRC)

<a href="https://www.skydo.com/blog/all-you-need-to-know-about-firc-a-complete-guide">FIRC</a> is the proof of inward remittance. It’s a necessary document for exporters, Indian companies offering services outside India, and freelancers to prove that they have received money from an international client. The FIRC contains details about the remitter, amount, and purpose of remittance among other crucial information. FIRC is more important for exporters because it’s useful for claiming export-related incentives and GST refunds.

<a href="https://www.skydo.com/blog/rbi_purpose_code_for_inward_remittance">Purpose codes</a> define the purpose of the remittance. You will find the<a href="https://www.rbi.org.in/upload/notification/pdfs/52220.pdf"> purpose code list</a> on the RBI website to identify the purpose of your transaction. After you have identified that, mention the purpose code to your bank.&nbsp;

You must be careful when you mention the purpose code to your bank. Incorrect information could result in compliance issues resulting in the cancellation of the transaction or legal actions in the worst case scenario. For example, if you’re an exporter of goods and entered into an agreement with the buyer to receive the full invoice value after they receive the shipment, then the purpose code for you is P0102. If you use P0103 which is applicable for exporters receiving advance payments, your payment could be denied.&nbsp;

What are the Documents Required for Inward Remittance in India?

The list of documents depends on the nature of the transaction. For example, the document list for an individual receiving money from a family member in a foreign country will be different from an exporter. We have listed all the documents for each category:

Identification proof: Any government-issued document that proves you’re a citizen of the country falls in this category. So your Passport, Aadhar Card and Voter ID will qualify.&nbsp;

Bank account details: Your bank name, account number, branch location, and IFSC code are the three most important information you must share with the remitter to receive foreign inward remittance

Purpose code: Check on the RBI purpose code list to find the most appropriate purpose code. There are different codes based on the purpose behind the personal transfer. For example, if you’re receiving the money for family maintenance and savings, then P1301 is the right code. You can find the right purpose code for your business <a href="https://www.skydo.com/blog/rbi_purpose_code_for_inward_remittance">right here</a>.&nbsp;

Receiving payment for business transactions

This not only applies to exporters but also freelancers and consultants who receive cross-border payments

Foreign Inward Remittance Certificate (FIRC): Once the payment reaches your bank account, you’ll need to request an FIRC from your bank to confirm receipt of funds. This usually involves a fee of around INR 400, and you can expect to wait at least a week before the FIRC is issued. However, platforms like Skydo provide free <a href="https://www.skydo.com/blog/how-to-get-firc-certificate-online">online FIRC</a> for every transaction instantly.&nbsp;

Invoice: The invoice should clearly mention the nature of the transaction like the item details in case you export goods.

Contract: Your bank might ask you to produce a copy of the agreement to understand your business relations with the international client.

Purpose code: The purpose code is essential because it defines the reason for payment. Double-check the purpose code before you share it with your bank to avoid hassles like cancellations or reversals.

KYC: If you’re an export organization, the Certificate of Incorporation, Memorandum, and Articles of Association are the most important KYC documents.

Bank account details: &nbsp;Your bank name, account number, branch details, and IFSC code will come under this category

Declaration form: Banks demand a declaration form during large transactions. You must submit an undertaking to the bank that the money is from a legitimate source and that you’re not involved in any illegal activities. This is done to increase transparency in transactions and track foreign funds.

Generally, there is no tax liability on foreign inward remittances in India. However, there are exceptions you should be mindful of to adhere to tax compliance laws:

Gifts: If the value of personal gifts from non-relatives exceeds INR 50,000 in a financial year, then you will be taxed as per the provisions mentioned <a href="https://ctconline.org/wp-content/uploads/pdf/2019/seminar-presentation/income/Study-Circle-Meeting-18-4-2019-Devendra-Jain.pdf">u/s 56 (2) (x) of the Income Tax Act</a>.&nbsp;

Foreign income: Foreign income in the form of salary or business proceeds will be taxed according to your income tax slab rate.&nbsp;

Income from investments: Any form of income you generate from foreign investments will also be taxed according to your income tax slab rate

GST: There is no<a href="https://www.skydo.com/blog/decoding-gst-on-foreign-exchange"> GST on foreign exchange</a>. However, payment platforms may charge 18% as a transaction fee for receiving inward remittances.&nbsp;

What income sources are Prohibited in the Inward remittance RBI guidelines?

Inward remittance from the following sources is strictly prohibited under the <a href="https://www.bcasonline.org/Referencer2015-16/Other%20Laws/fema.htm">FEMA guidelines</a>:

Online gaming: Any income generated from online gaming websites, betting or gambling platforms cannot be remitted to India.&nbsp;

Other speculative or illegal activities: This broad category covers all forms of income generated through illegal activities like drug trafficking.&nbsp;

Lottery winnings: If a lottery is a source of income, you cannot remit the funds to India. This is so because it’s difficult to track the source of the lottery and could be associated with money laundering.

Winning from races or riding: Income generated from betting on races is treated as income from gambling activities. Therefore it is banned from inward remittance transactions.

Earnings from banned magazines: Banned magazines promote violence and hatred towards communities or some other form of illegal content. Allowing income from such sources to enter the country could be a threat to cultural stability.

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