A parent in India can send up to $250,000 a year abroad under India’s Liberalised Remittance Scheme. For families helping an NRI child buy a home, that can mean a substantial down payment or even a large part of the purchase price.
If both parents are eligible and use their own limits, the family could potentially send up to $500,000 in the same financial year.
But there is a second rule that can easily get overlooked.
Once the money reaches the United States, the Indian remittance rules no longer tell the whole story. If the child is a U.S. person and receives large gifts from foreign parents, the child may have a separate IRS reporting obligation.
The money may not be taxable income. The filing can still be mandatory. See also: Leaving the US? What Happens to Your 401(k) When You Move Abroad?.
How much can an Indian parent send?
Under the LRS, a resident individual can remit up to $250,000 per financial year, which runs from April 1 through March 31.
The limit applies to the individual, not to the family as a whole.
That means two resident Indian parents can potentially remit $250,000 each, for a combined $500,000 in one financial year. This assumes neither parent has already used part of the annual allowance for other LRS transactions.
The allowance does not roll over.
If a parent sends $150,000 during one financial year, the remaining $100,000 cannot simply be added to the following year’s limit. The unused portion expires when the financial year ends.
The limit also cannot simply be pooled from companies, LLPs or trusts to create a larger personal LRS allowance.
The 20% TCS sounds worse than it is
There is another number that can scare families: 20%.
Since April 1, 2025, remittances under LRS up to ₹10 lakh in a financial year are not subject to TCS. Once the aggregate remittances cross that threshold, general-purpose remittances are generally subject to TCS at 20%.
For a parent sending a large amount to help with an overseas property purchase, that can mean a substantial amount of cash is collected by the bank before the transfer is completed.
But TCS is generally not an additional 20% tax on the family.
It is a tax collected in advance and credited to the parent’s PAN. The credit appears through India’s tax reporting system, including Form 26AS and the Annual Information Statement.
The parent can claim the credit when filing the Indian income tax return. If the amount collected is greater than the parent’s eventual tax liability, the excess can generally be refunded.
So the immediate problem is largely cash flow and timing, not necessarily a permanent 20% loss.
Gift or loan? Make that decision before the transfer
Families should also decide what the money actually is before sending it.
Is the parent giving the money to the child, or is the child expected to repay it?
That distinction matters.
A genuine gift should be supported by appropriate documentation, including evidence of the relationship, a gift deed or declaration where appropriate, proof of the source of the money and the bank records showing the transfer.
A loan needs to be documented as a loan, including its repayment terms.
The paperwork should not be created merely after a bank or tax authority asks questions. For a large cross-border transfer, the purpose and nature of the transaction should be clear from the beginning.
Indian FEMA and RBI requirements also need to be considered when structuring the transfer.
Then the U.S. rules kick in
This is where the two systems become easy to confuse.
India’s LRS rules determine how much a resident Indian can remit. They do not determine what the recipient has to report to the IRS.
For a U.S. person, including a U.S. citizen or green card holder, a large gift from a foreign individual can trigger Form 3520 reporting.
If the total gifts received from foreign individuals or foreign estates exceed $100,000 during the tax year, the U.S. recipient generally has to report the gifts to the IRS.
That does not mean the child suddenly owes $100,000 in U.S. income tax.
A genuine gift from a foreign individual is generally not included in the recipient’s gross income.
The important distinction is:
No income tax does not mean no reporting requirement.
A $250,000 gift can mean a Form 3520 filing
Consider a simple example.
An India-resident parent sends $250,000 to a U.S.-resident child to help purchase a home.
On the Indian side, the parent needs to deal with the LRS rules, TCS and the documentation supporting the transfer.
On the U.S. side, if the recipient is a U.S. person, the $250,000 foreign gift exceeds the $100,000 reporting threshold. See also: $100,000 or $103,265? What the viral H-1B fee videos keep getting wrong.
That can mean Form 3520 needs to be filed.
The form is generally due on the same date as the recipient’s U.S. individual income tax return, typically April 15 for a calendar-year taxpayer, with extensions available in applicable circumstances. See also: Still Have $10,000+ Back Home? The U.S. Wants It Reported by October 15.
The reporting requirement is therefore something the child needs to know about before assuming the transaction is finished once the money arrives in the U.S.
The penalty can be much bigger than people expect
Ignoring Form 3520 is where a relatively straightforward family transfer can become expensive.
The penalty for failing to properly report a reportable foreign gift can be 5% of the value of the gift for each month the form remains late, subject to a 25% maximum, unless an exception such as reasonable cause applies.
For a $250,000 gift, a 25% maximum would equal $62,500.
That does not mean every late filing automatically results in a $62,500 bill. The actual penalty depends on the circumstances and applicable IRS rules.
But the potential size of the penalty is exactly why a large foreign gift should not be treated like an ordinary bank transfer.
What if the money comes from a company?
There is another rule that can catch families using a business or other foreign entity to move money.
The reporting threshold for certain gifts or distributions from a foreign corporation or foreign partnership is much lower than the $100,000 threshold for gifts from a foreign individual.
For 2025, the inflation-adjusted threshold is $20,116. For 2026, it is $20,573.
That does not normally apply to a straightforward parent-to-child gift made personally by an India-resident parent.
But routing the money through a foreign company or partnership can change the U.S. reporting analysis.
The entity’s involvement should therefore be established before the transfer, not after the money has arrived.
The rules at a glance
| Rule | What it means |
|---|---|
| India’s LRS limit | $250,000 per resident individual per financial year |
| Financial year | April 1 through March 31 |
| Two eligible parents | Potentially $500,000 combined |
| Unused LRS allowance | Does not carry forward |
| TCS-free threshold | ₹10 lakh per financial year |
| TCS above threshold | Generally 20% for applicable general LRS remittances |
| TCS treatment | Advance tax credit, generally claimable against Indian tax liability |
| U.S. foreign-gift reporting | Generally triggered when gifts from foreign individuals exceed $100,000 in a tax year |
| U.S. form | Form 3520 |
| Form 3520 deadline | Generally April 15 for calendar-year filers, subject to applicable extensions |
| Potential late-filing penalty | 5% per month, up to 25% in applicable cases |
| Foreign entity threshold | $20,116 for 2025; $20,573 for 2026 |
The $250,000 limit is not a U.S. property-purchase allowance
There is one more important point.
The LRS limit is an Indian foreign-exchange/remittance limit. It does not mean the United States gives an NRI child a special $250,000 tax-free home-buying allowance.
The two countries are applying different rules to different people.
The Indian parent is dealing with India’s remittance framework.
The U.S. child is dealing with U.S. tax and information-reporting rules.
That distinction becomes particularly important when the transfer is large.
What families should do before sending the money
For a large parent-to-child transfer, the cleanest approach is to establish the structure first and move the money second.
The Indian parent should confirm the available LRS limit, understand the TCS that the bank will collect and maintain documentation showing the source and purpose of the funds.
The family should also clearly document whether the transfer is a gift or a loan.
The U.S. recipient should separately determine whether the transfer triggers Form 3520 and keep the documents showing who sent the money, the amount, the date and the nature of the transfer.
The key point is simple: getting the money legally out of India is only half of the compliance story.
A $250,000 gift can be perfectly legitimate and still create a U.S. reporting obligation for the child.
And because the potential Form 3520 penalties can be substantial, this is one cross-border transaction where the paperwork should be sorted out before the money moves.
Sources
- Business Standard, reporting on Indian parents funding an NRI child’s overseas home purchase.
- IRS, Gifts from Foreign Person.
- IRS, Form 3520 instructions.
- RBI/Liberalised Remittance Scheme guidance.
- Supporting Indian tax guidance on TCS for foreign remittances.
