Response

Here’s a breakdown of the tax implications and best course of action based on your situation:

1. Tax Implications on Your Father:

Since the money received by your father (₹25,00,000) is not his income but a repayment of a loan your friend owed to you, it should not be treated as your father’s income for tax purposes. However, to avoid any confusion with the tax authorities, it would be advisable for your father to maintain proper documentation to show that this amount was transferred as part of your friend’s repayment to you.

Documents that may be helpful:

• A declaration from your friend explaining that the money was owed to you.
• Any previous correspondence (like emails or loan agreements) between you and your friend confirming the debt.
• Bank statements showing the flow of money.

By doing this, your father can prove that the money was not his income but a temporary pass-through to settle your friend’s debt.

2. Transferring Money to You:

Now, regarding your father sending the money to you, there are two options:

Option 1: Sending it directly to Dubai via the Liberalised Remittance Scheme (LRS)

• Under the LRS, your father, as a resident Indian, can remit up to USD 250,000 per financial year (around INR 2 crores) to you abroad. This will be a direct transfer from his account to your account in Dubai.
• There are no tax implications for you receiving this amount abroad.
• Your father may be required to file the necessary forms and submit documents with the bank under the LRS for sending money abroad.
• Bank and conversion charges will apply. It can be flat or percentage depending upon your bank.
• Since the amount >Rs.7 lakhs, TCS of 1% will apply, which your father can claim refund by filing income-tax return.

Option 2: Sending it to your NRO account as a gift

• Your father can transfer the money to your NRO account in India, treating it as a gift. Gifts from specified relatives (including parents) are not taxable in India.
• From your NRO account, you can later transfer the money to your NRE account. However, you would need to satisfy the conditions laid out by your bank for transferring funds from NRO to NRE (proof of foreign source income and paying applicable taxes if required).
• One potential issue here is that any income (such as interest) earned on funds in the NRO account would be taxable in India. Additionally, the process of transferring from NRO to NRE can involve some paperwork and may take time.

Best Option from a Tax Perspective:

• The simpler and more tax-efficient option would be for your father to remit the funds directly to your account in Dubai via the LRS scheme. This avoids any potential tax on interest that might arise if the funds are first deposited in your NRO account and simplifies the overall process.
• Sending the funds as a gift to your NRO account and then transferring it to your NRE account is also possible, but it involves extra steps and could be subject to taxes on any interest earned in the NRO account.

In summary:

• No tax liability on your father, provided proper documentation is maintained.
• The LRS scheme transfer directly to Dubai is simpler and avoids potential interest taxation in India.