Important Keyword: Gift Income, Income Tax, Income Tax for NRI.

Gift to NRI by Resident Indian

The Income Tax Act defines a gift as any asset received without consideration or against inadequate consideration, such as money or money’s worth. Gifts can take various forms, including cash, movable property, or immovable property. Here’s an overview of the tax implications associated with giving or receiving gifts to or from Non-Resident Indians (NRIs) by resident Indians or vice versa:

1. Movable Property: This category encompasses shares, securities, jewelry, archaeological collections, drawings, paintings, works of art, bullion, vehicles, and other similar assets.
2. Immovable Property: Immovable property refers to land or buildings or both. It’s important to note that agricultural land in rural areas is not considered immovable property for tax purposes.

When a resident Indian gifts assets to an NRI or vice versa, there are tax implications to consider:

• Tax Liability: The recipient of the gift, whether the NRI or the resident Indian, may be subject to tax on the value of the gift received. However, specific tax implications can vary based on the nature and value of the gift, as well as any applicable Double Taxation Avoidance Agreements (DTAA) between countries.
• Reporting Requirements: Both the donor and the recipient may have reporting obligations under the Income Tax Act regarding gifts received or given. It’s essential to fulfill these reporting requirements to ensure compliance with tax laws.
• Gift Tax: While India abolished gift tax in 1998, certain gifts may still be subject to taxation under other provisions of the Income Tax Act, especially if they are received from non-relatives or exceed certain specified thresholds.

Taxability on Gifts to NRI by Resident Indian

For non-residents, only income received, accrued, or deemed to have been received or accrued in India is taxable in the country. This principle applies to gifts as well, where the origin of the gift holds significance for tax purposes, rather than the destination of the gift abroad.

When a resident Indian gifts to an NRI, the tax treatment depends on whether the recipient is a relative or a non-relative:

1. Gifts to Relatives: Gifts given to relatives, as defined under the Income Tax Act, are generally not subject to taxation. Relatives include spouses, children, siblings, parents, and certain other relatives as per the Act. Therefore, gifts to NRIs who qualify as relatives typically do not attract tax liabilities for the recipient.
2. Gifts to Non-Relatives: Gifts given to non-relatives, including NRIs who do not fall within the definition of relatives under the Act, may have tax implications. The value of the gift and its nature, along with any applicable Double Taxation Avoidance Agreements (DTAA), determine the tax treatment for both the donor and the recipient.
3. The below chart depicts the status of taxability:-

Gifts can be taxable if they are in the form of capital assets in the hands of the recipient. However, gifts in the form of stock, raw materials, or consumables that can be utilized in the recipient’s business operations are not considered capital assets and therefore are not taxable.

Non-Resident Indians (NRIs) must declare all taxable gifts when filing Income Tax Returns in India. These gifts are chargeable to tax under the head “Income from other sources” and are taxed at normal slab rates.

Exemption of Gifts

Under various circumstances, the receipt of gifts is non-taxable for the recipient, regardless of the monetary value:

1. Gifts received from relatives: Gifts from relatives, as defined under tax regulations, are not taxable. Relatives include spouses, siblings, parents, grandparents, grandchildren, and their respective spouses.
2. Gifts received on specific occasions: Gifts received on the occasion of marriage, through a will, or by way of inheritance are exempt from tax.
3. Gifts received in contemplation of death: Gifts received in anticipation of the payer’s death are non-taxable.
4. Gifts received from specific entities: Gifts received from local authorities, funds, foundations, educational institutions, medical institutions, hospitals, trusts, or institutions defined in Section 10(23C) are exempt from tax.

These exceptions apply even in the context of gifts from Non-Resident Indians (NRIs) to resident Indians. Additionally:

• Gifts from NRI relatives to resident Indians are exempt from tax for both the giver and receiver.
• Gifts to resident Indians from NRIs, whether relatives or non-relatives, within INR 50,000 are exempt from tax for both parties.
• Gifts exceeding INR 50,000 from NRIs to resident Indians are taxable for the recipient based on their income tax slab rates.
• Gifts to resident Indians from NRIs on the occasion of marriage or through a will are exempt from tax for both parties.

It’s crucial to maintain a record of gifts through gift deeds and store them securely to avoid potential issues in the future. This documentation helps clarify the nature and purpose of the gift transaction.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/