You are an NRI traveling back to India, and the person who came to pick you up from the airport brought some gifts for you! Sound exciting? Before cheering your gifts, read this article to clear your doubts about how a gift received by an NRI from a resident Indian or vice versa is treated for taxation in India.
Taxation on Gifts to NRI by Resident Indian
Let’s discuss how a gift is treated for the purpose of taxation:
The destination of the gift is not as important as its origin. For non-residents, only income accrued or received or considered to have been accrued or received in India is taxable in India.
How a gift should be treated for tax depends on whether it was received by a relative or a non-relative.
If a gift received by an NRI is valued at more than ₹50,000 by friends or associates, then the value of the gift will be added to the NRI's taxable income and taxed as per the NRI's income tax slab under the head ‘Income from Other Sources.’
When gifting immovable property, the amount remitted from the sale cannot surpass $1 million annually. Securities gifted must not exceed 5% of the company's paid-up capital. Additionally, cash gifts are capped at Rs 2 lakh.
Moreover, there exists a cap of $250,000 per financial year for gifts to NRIs, as per the Liberalised Remittance Scheme.
Taxation on Gifts to Resident Indians by NRI
Here’s how a gift is treated for tax if a resident Indian receives it from an NRI:
If the gift amount exceeds ₹50,000, the entire amount becomes taxable for the recipient under the income category Income from Other Sources. Nevertheless, gifts received from relatives, as delineated in section 56(2) of the act, are exempt from this tax obligation.
Simply fulfilling section 56 does not absolve one from tax liability. The recipient must also meet the requirements of section 68 of the act, which entails providing a satisfactory explanation to the Income Tax Assessing Officer regarding the nature and origin of any credited sum.
Moreover, gifts received from non-residents as marriage gifts or through a will are exempt for both the giver and the receiver, regardless of their relationship.
The chart below represents the status of taxability:
Sr. No. | Particulars | Taxability |
1. | Monetary (Cash, cheque, draft) | If the amount is more than ₹50,000, the entire amount is taxable |
2. | Cash or gifts valued less than ₹50,000 | Not Taxable |
3. | Gift from relatives | Not taxable |
4. | Gift from other than relatives | Not taxable if valued under ₹50,000 |
5. | Movable property as a gift | Taxable if the value exceeds Rs 50,000/- and is received from individuals other than specified relatives. |
6. | Immovable property | Taxable if the stamp duty value exceeds Rs 50,000/- and is received from individuals other than specified relatives. |
7. | Gift on the occasion of marriage | Entirely tax-free irrespective of value |
What are the Relatives for the purpose of Income Tax
Below is a list of persons who are defined as relatives as per the Income Tax Act -
Spouse of the individual.
Individual’s Brother or sister
Brother or sister of the individual’s spouse.
Brother or sister of either of the individual’s parents.
Individual’s Lineal ascendant or descendant.
Lineal ascendant or descendant of the individual’s spouse.
Spouse of the persons referred to in (2) to (6).
FEMA Requirements if Gift Involved NRI
The directives outlined within the Foreign Exchange Management Act, 1999 regarding gifts involving NRIs are as follows:
An NRI or Overseas Citizen of India (OCI) retains the authority to gift a resident through a remittance from their NRO or NRE account.
The authority to gift a resident cannot be delegated to the power of attorney of these accounts; the transaction must be executed solely by the NRI/OCI account holder.
NRIs/OCIs have the precedence to gift cash to residents; however, a resident cannot have more than $2000 or its equivalent at any given time.
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