Gift Tax in India and its Effect on NRIs

Gift Tax in India and its Effect on NRIs

Under the Indian Income Tax laws, the treatment of gifts varies depending on whether the gift is given to relatives or non-relatives.

As per the Liberalized Remittance Scheme (LRS) of the Foreign Exchange Management Act (FEMA), a resident Indian can remit up to $250,000 per year for reasons as mentioned in the LRS. And a gift to a non-relative non-resident also comes under its purview.

Tax liability on such gifts

Earlier, such gifts weren’t taxable in India. But under the amended laws, this sum would be considered to have accrued or arisen in India. And gifts received by non-residents as remittances from India would attract tax in India.

There is a condition attached, though. Gifts received from certain specified relatives won’t be considered as income. Hence, such gifts won’t attract any tax liability. “Relatives” would mean the following people:

  • Father
  • Mother
  • Spouse
  • Children
  • Siblings
  • Grandparents
  • Grandchildren
  • Step-siblings
  • Stepmother
  • Stepfather
  • Child’s spouse
  • Grandchildren’s spouses
  • Sibling’s spouses
  • Stepchildren

A gift from any one of the above people to an NRI won’t come under the purview of tax because they all fall under the category of relatives. Anyone who doesn’t fall into one of these categories would be considered a non-relative.

When anyone makes a payment to an NRI that is taxable, the payer needs to deduct tax at source. The payer needs to obtain a Tax Deduction Account Number (TAN) and deduct the tax. He/she also needs to fill out the related forms while remitting the funds. Thereafter, the payer has to file a return for deducting the tax.

Certain rules governing gifts to NRIs

  • NRIs can receive immovable properties as gifts. If such a property is sold and the proceeds remitted to the NRI, the remittance of such sale proceeds shouldn’t exceed $1 million annually.
  • Relatives can gift shares and securities as gifts to NRIs. But the value of such gifts shouldn’t exceed 5% of the company’s paid-up capital.
  • If a specified trust gives a gift, it is exempt from tax. The same is the case with scholarships from educational institutions.
  • Cash gifts more than ₹2,00,000 are liable to attract penalties.
  • Gifts less than ₹50,000 to a non-relative NRI are tax-exempt.

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