NRI Gift Deed: Tax Rules

There are around 15 million Non-Resident Indians (NRIs) living around the world, having strong financial ties with their families in India, supporting them through monetary remittances and, in return, receiving financial support from their families for various needs abroad. These financial exchanges, whether for personal expenses, education, investments, etc., are integral to maintaining cross-border family relationships. 

‍The Foreign Exchange Management Act (FEMA), 1999 rules regulate the permissibility of gift transactions, while their taxability is governed by the Income Tax Act of 1961 when NRIs are involved in giving or receiving gifts from Indian residents.

The gift tax in India has undergone many changes. First, it was introduced by the Gift Tax Act of 1958 and applied to both movable and immovable assets. The donor of the gifts was taxed at a flat rate of 30%. 

The gift tax was abolished in 1998 due to administrative difficulties, to boost economic growth, to mitigate tax evasion and to simplify tax laws. 

However, in 2004, the gift tax was reintroduced under the Income Tax Act 1961. Initially, the limit was ₹25,000, which increased to ₹50,000. Anything above ₹50,000 is taxable as “Income from Other Sources” in the hands of the recipient with some exceptions.

‍

What Is An NRI Gift Deed?

An NRI Gift Deed is a legal document under Section 17 of the Registration Act, 1908, used to transfer ownership of movable and immovable assets involving an NRI. It is a formal agreement between the donor (who sends the gift) and the recipient. The gift deed must be printed on stamp paper, and both parties must sign all pages.

‍

Taxation On Gifts To NRI By Resident Indian

The tax treatment of gifts to NRIs by resident Indians varies depending on whether the recipient is a relative or a non-relative.

‍

‍

Taxation On Gifts To Resident Indians By NRI

Gifts from NRIs to resident Indians are taxable under the Income Tax Act, 1961 if the total value exceeds ₹50,000 in a financial year unless received from a defined relative (such as a spouse, siblings, or parents), in that case, they are fully exempt as per section 56(2) of the act. 

Both monetary gifts and gifts of movable or immovable property are subject to tax if their value surpasses ₹50,000, with the recipient required to declare such gifts as "Income from Other Sources" in their income tax return and pay taxes. 

However, gifts received on special occasions like marriage or through a will are fully exempt from tax, regardless of the relationship between the giver and the recipient. In addition to meeting the conditions of section 56 of the Act, the recipient must also provide a satisfactory explanation regarding the source of any sum credited to their account under section 68, ensuring that the nature and origin of the gift are well-documented.

‍

Who Are The Relatives For The Purpose Of Income Tax?

The treatment of Gift Tax In India is different when given to relatives and when given to non-relatives. As per the Income Tax Act - Section 2 (41), "Relative" in relation to an individual means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

‍

Meaning of 'relative' as defined in Section 6 of The Companies Act, 1956

A person shall be deemed to be a relative of another if, and only if, 

(a) they are members of a Hindu undivided family or 

(b) they are husband and wife, or 

(c) the one is related to the other as indicated in *Schedule IA. 

‍

List of Relatives indicated in Schedule IA Section 6 of the Companies Act, 1956:

Types Of Assets That Can Be Gifted 

According to the IT Act, a gift is any asset or money received by an NRI without any obligation to return it. These assets include liquid funds, immovable properties, shares, securities, Limited Liability Partnerships (LLPs) interests, and other valuables like jewellery or artwork. However, NRIs are prohibited from receiving gifts of agricultural land, farmhouses, or plantation properties in India.

‍

NRI Gift Tax Rules In India

Some of the important NRI Gift Tax Rules in India are:

• The receipt of gifts by NRIs is governed by the FEMA, and their taxability is determined under the Income Tax Act, 1961 (IT Act).
• As per the IT Act 1961, any gifts, including movable or immovable, received by NRIs during their marriage through inheritance or under a will are fully exempt, whether by relatives or non-relatives.
• Under the Liberalised Remittance Scheme (LRS), gifts to NRIs are limited to $250,000 per financial year.
• Monetary gifts to NRIs can be made to their NRO account only.
• While gifting immovable property, the sale proceeds can be remitted up to $1 million in a financial year. Reserve Bank of India (RBI) permissions are required to remit more than $1 million annually.
• Securities gifted cannot be more than 5% of the company's paid-up capital. 
• Cash gifts cannot exceed ₹2 lakh; anything beyond that may attract a penalty. 
• Gifts from specific funds, trusts, or scholarships from educational institutions are not taxable as they are considered part of charitable, educational, or philanthropic activities. 
• Agricultural land/plantation property/farmhouse in India cannot be acquired by gift.

‍

Conclusion

Gifting has been a part of Indian tradition for centuries. The exchange of gifts between NRI and resident Indians plays an integral part in maintaining strong financial and emotional bonds across borders. However, these transactions are governed by the FEMA and the Income Tax Act; anyone engaging in such transactions should ensure compliance with Indian financial regulations applicable to NRIs to avoid any potential tax issues in the future. Maintaining detailed records of the nature and origin of the gift is essential; ensuring this helps provide clarity during tax assessments and prevents any legal complications.

At iNRI, we specialize in providing comprehensive taxation services for NRIs. 

‍

‍

Frequently Asked Questions (FAQs): NRI Gift Deed Tax Rules

‍

Can resident parents gift their NRI children?

Yes, Under Section 56(2) of the Income Tax Act, gifts received by an individual from parents are exempt from tax, irrespective of the amount.

‍

Is there any way to gift money to a NRI friend?

There are many ways in which money can be gifted to a NRI friend 

• Online transfer to NRO/NRE accounts
• Wire Transfers
• Digital Wallets like Paypal etc 
• Money Transfer Services like Western Union, etc.

‍

Can NRI send money to parents in India without tax?

Under the RBI’s Liberalized Remittance Scheme (LRS), NRIs can remit up to $250,000 per financial year for various purposes, including gifts to their parents. 

‍

Can an Indian wife transfer money to her US citizen husband?

Under LRS, an Indian wife can transfer up to $250,000 per financial year to her US citizen husband.

‍

Are there any legal restrictions on transferring money from India to the USA?

Under the RBI's Liberalized Remittance Scheme (LRS), Indian residents can transfer up to $250,000 per financial year. Anything more than $250,000 in a financial year requires prior permission from the RBI. In case of sale proceeds, the NRI can remit up to $1 million in a year. All transfers have to comply with the FEMA guidelines for NRIs.

‍

How can an Indian wife send money to a foreign spouse?

Indian wives can send money to a foreign spouse up to $250,000 per financial year using several methods:

• Online transfer to NRO/NRE accounts
• Wire Transfers
• Digital Wallets like Paypal etc 
• Money Transfer Services like Western Union, etc

‍

Does FEMA apply to remittances to a foreign spouse?

Yes, the FEMA rules apply to remittances to a foreign spouse.

‍

Are there bank fees for transferring money from India to the USA?

Yes, there are bank fees associated with transferring money from India to the USA.These fees can vary depending on the bank and the amount being transferred, e.g., the commission applicable if the transaction is made through a branch, Bank charges plus GST, etc.

‍