Cross-Border Family Finances: Tax Realities for India-U.S. Transfers

(INDIA) India’s most common overseas family story—parents at home, children in the United States—has taken a sharper turn this year as advisers warn that routine support across borders is now colliding more often with tax reporting rules on both sides. Accountants in Mumbai and New York said this week that money moving between Indian parents and U.S.-based children—whether for tuition, rent, gifts, or joint investments—can trigger filings under India’s Liberalised Remittance Scheme and the U.S. foreign asset regime, even when no actual tax is due.

With remittances topping USD 135 billion annually, families fear small mistakes could lead to big penalties.

The core compliance tension

What’s shifting is not the love or duty that keeps these ties strong, but the compliance net around them. Parents who remain Indian tax residents often hold property, pensions, and fixed deposits in India. Their children, after moving to the United States on F‑1, H‑1B, or a Green Card, become U.S. tax residents and fall under worldwide income rules.

That cross-border reality brings a simple but stark principle: the same rupee or dollar can be tax-free as a gift in one country, yet still be reportable—and audited—in the other. According to analysis by VisaVerge.com, families who assume small transfers are invisible are the ones most likely to face costly notices.

Typical transfer directions and immediate rules

• Transfers from children in the United States to parents in India:
  • In India, amounts received by parents from their children generally qualify as non-taxable gifts from a “relative” under the Income Tax Act.
  • In the U.S., the focus is on paperwork. There’s no tax break for personal support, and larger annual gifts—those exceeding USD 17,000 per recipient in 2025—trigger a filing requirement for the donor on Form 709 (IRS Form 709).
  • Tax at that stage is rare because of the current USD 13.6 million lifetime federal gift and estate exemption, but the filing itself is mandatory.
• Transfers from parents in India to children in the United States:
  • Under the RBI’s Liberalised Remittance Scheme (LRS), Indian residents can remit up to USD 250,000 per financial year for education, maintenance, or other permitted purposes.
  • Crossing that cap requires Reserve Bank approval. Most banks insist on Form 15CA and Form 15CB documentation before the funds move.
  • Official LRS guidance and purpose codes are available from the Reserve Bank of India (RBI LRS FAQ).
  • 20% TCS applies on foreign remittances above ₹7 lakh in a financial year; it can be claimed back on the Indian tax return but reduces cash flow in the interim.

U.S. reporting for foreign gifts and penalties

When remittances land in the United States as a gift from a non-U.S. person, the recipient usually owes no U.S. tax on the amount. But reporting thresholds matter:

• Aggregate foreign gifts above USD 100,000 in a year must be reported on Form 3520 (IRS Form 3520).
• Penalties for non-filing can be severe—up to 25% of the unreported amount.
• Advisers recommend descriptive wire narrations such as “Gift/Family Maintenance”, and supplying PAN or passport details of the sender to help banks and auditors confirm the transfer isn’t income.

Joint accounts, property, and foreign-asset disclosures

Joint assets between parents and children create the messiest mismatches:

• NRE/NRO accounts or jointly titled property in India may require disclosure on the annual FBAR—FinCEN Form 114—if combined foreign account balances exceed USD 10,000 at any time in the year (FinCEN FBAR).
• They may also be reportable under FATCA on Form 8938, depending on thresholds (IRS Form 8938).
• Failing to file FBAR/FATCA forms can lead to penalties of USD 10,000–50,000 or more.
• On sale of jointly held Indian property:
  • India taxes the gain in rupees.
  • The United States taxes again on the dollar gain; the U.S. taxpayer must prove original cost and apply the correct historical exchange rate to claim a foreign tax credit.

Inheritance and related reporting traps

Inheritance often slips through the cracks:

• India levies no inheritance tax, but a U.S. tax resident who receives a foreign inheritance over USD 100,000 must report it on Form 3520.
• The inherited asset might not be taxed on receipt, yet any subsequent rent or sale proceeds are taxable in the U.S.
• Families who assume “no inheritance tax in India” means “no paperwork in America” often find otherwise when mortgage lenders or wealth managers request proof of reported foreign funds.

Indian and U.S. paperwork that commonly arises

Indian filings and certificates:
– Form 15CA and Form 15CB required by banks for outward transfers under LRS (India Form 15CA Help, India Form 15CB Help).
– Form 67 in India may be needed if a child earns income abroad or in India to claim foreign tax credit (India Form 67 Help).

U.S. filings:
– Form 3520 for foreign gifts and inheritances above thresholds (IRS Form 3520).
– FinCEN Form 114 (FBAR) for foreign accounts above USD 10,000 (FinCEN FBAR).
– Form 8938 for FATCA reporting (IRS Form 8938).
– Form 1116 for the foreign tax credit on the U.S. return (IRS Form 1116).

Consequences for non-filing can include penalties of about ₹1 lakh under FEMA for certain disclosures in India, and steep U.S. fines for missing foreign-asset and gift filings.

Common double-taxation examples

• Interest on NRE accounts: tax-free in India, taxable in the United States for residents.
• Rental income from Indian property: taxed in India and must be reported on the U.S. return; a foreign tax credit may offset some U.S. tax.
• Capital gains on Indian stocks or property: India applies holding-period rates (often 15% or 20%); the U.S. taxes the dollar gain at sale. Accurate exchange-rate tracking is essential to calculate credits.
• Indian EPF withdrawals: can be partly taxable in the United States if the individual is a U.S. tax resident at withdrawal.

Practical problems and adviser recommendations

The speed bumps are as much practical as legal:

• Families commonly commingle funds, hold joint accounts for convenience, or alternate labels (gift vs maintenance) month to month—making audit trails messy.
• Banks are stricter due to global anti–money laundering rules:
  • U.S. banks ask immigrants about source of funds for larger cross-border wires.
  • Indian banks request purpose codes and proof for outward LRS transfers.
• Simple documentation often suffices: a gift deed plus a consistent wire narration usually satisfies checks.

Advisers recommend:
1. Keep clear labels on transfers and consistent wire narrations.
2. Maintain exchange-rate records and consistent methods for conversions.
3. Coordinate explicitly between the parents’ Indian chartered accountant and the child’s U.S. CPA.
4. Align proof of tax paid and account statements for both countries, mindful that India’s fiscal year (April–March) differs from the U.S. calendar year.

“Keep records, file forms, and don’t mix accounts casually.”
That is the concise professional guidance: treat paperwork as part of the gift.

Policy friction and why alignment matters

There are signs of quiet friction:

• Parents object that 20% TCS ties up cash until refunds are processed, even for transparent, lawful transfers.
• Children question duplicate filings: why must a gift reported on Form 3520 also trigger FBAR or FATCA checks if the funds only sit briefly in an Indian account?
• Policymakers have not offered relief, but tax professionals say better alignment of purpose codes and thresholds between Indian LRS rules and U.S. foreign reporting would reduce accidental non-compliance without weakening enforcement.

Practical checklist for families

• Confirm LRS headroom before large outward transfers.
• Expect banks to ask for Form 15CA/15CB and provide them when needed.
• Use consistent, descriptive wire narratives (e.g., “Gift/Family Maintenance”).
• Collect sender identification (PAN or passport) to assist audits.
• If combined foreign accounts exceed USD 10,000, file FBAR.
• If foreign gifts/inheritances exceed USD 100,000, file Form 3520.
• For gifts over USD 17,000 per recipient (2025), the U.S. donor must file Form 709.
• Model cross-border tax outcomes (including timing, exchange rates, and foreign tax credits) before major events: property sales, weddings, or house purchases.

Final takeaway

The numbers give little room for complacency. The remittances that support families and fuel India’s foreign-exchange inflows remain steady, but the penalties for missing a form can wipe out months of savings.

Families who treat paperwork as part of the gift—documented, labeled, and reported—avoid that risk. Those who assume small, frequent transfers stay below the radar often learn the opposite the first time a bank or tax office sends a query. In a world where love travels faster than policy, getting the filings right is the only way to keep the help flowing without fear.