Answer By law4u team
Non-Resident Indians (NRIs) may receive gifts from Indian residents, but the tax implications for such gifts are governed by the Income Tax Act of 1961. Whether or not the gift is tax-free depends on the relationship between the giver and the recipient, the nature of the gift, and the total value of the gift. NRIs can receive tax-free gifts under certain conditions, which are important for both the donor and the recipient to understand to avoid tax liabilities.
Tax-Free Gifts for NRIs from Indian Residents:
Gifts from Close Relatives:
Exemption under Section 56: Gifts received by NRIs from close relatives (as defined under the Income Tax Act) are tax-free in India. The list of close relatives includes parents, siblings, spouse, children, and in-laws.
No Limit on Gift Amount: There is no monetary limit on gifts from close relatives. Whether the gift is money, property, or assets, if it is given by a close relative, it will not be subject to income tax in India.
Example: If an NRI’s parent in India gifts them a sum of money or property, it is tax-free in India.
Gifts from Non-Relatives:
Taxability: If an NRI receives a gift from a non-relative (someone who is not listed as a close relative), and the value of the gift exceeds Rs. 50,000, it will be subject to income tax under Section 56 of the Income Tax Act. The gift will be treated as income in the hands of the recipient.
Taxable Gift Amount: The value of the gift (if above Rs. 50,000) is added to the NRI's income and will be taxed according to the applicable income tax rates.
Example: If an NRI receives a gift worth Rs. 1 lakh from a friend or acquaintance, it will be taxed as income for the NRI, and the NRI will have to pay income tax on it.
Gifting of Property (Immovable Property or Agricultural Land):
Gift Deed & Registration: When an NRI receives immovable property (e.g., a house, land) as a gift from a resident Indian, a gift deed needs to be executed and registered with the local authorities. This applies to both agricultural land and non-agricultural property.
Tax Exemptions: Gifts of agricultural land from close relatives are generally exempt from tax. However, property gifts from non-relatives could still attract tax if the value exceeds Rs. 50,000. Additionally, the stamp duty associated with the property gift must be paid as per state laws.
Monetary Gifts (Remittances to NRIs):
Remittance: NRIs can receive money (remittances) from family members in India as gifts. If the gift is sent from a close relative and is properly documented, it will be tax-free.
Tax-Free Limits: There are no tax implications for monetary gifts from relatives, regardless of the amount. However, if the gift comes from a non-relative, the same rule of Rs. 50,000 applies, and the gift may be taxable as income.
Gift Tax Law – No Gift Tax but Income Tax:
No Gift Tax: India does not have a gift tax anymore. However, gifts above a certain threshold may attract income tax under Section 56(2) if they exceed Rs. 50,000 and are from a non-relative.
TDS on Gifts: For gifts made in the form of remittances or other means, Tax Deducted at Source (TDS) may not apply, but the recipient must report the gift in their income tax returns if it exceeds the exemption limit.
Example:
Gifting Money from a Relative:
Mrs. Sharma, an Indian resident, gifts Rs. 2 lakh to her son, who is an NRI in the US. Since the gift is from a close relative (mother to son), it is tax-free in India, and the NRI does not have to pay any income tax on it.
Gifting Money from a Non-Relative:
Mr. Ramesh, a resident of India, gifts Rs. 75,000 to his friend, who is an NRI in the UAE. Since the gift is from a non-relative and exceeds Rs. 50,000, it will be treated as income for the NRI. The NRI will have to pay income tax on the value of the gift.
Gifting Property:
Mr. Sharma, a resident of India, gifts agricultural land in a rural area to his daughter, who is an NRI. As the gift is from a close relative, the gift is tax-free in India, and no income tax will be levied on the recipient.
Conclusion:
NRIs can receive tax-free gifts from Indian residents under the Income Tax Act if the gift is from close relatives (such as parents, siblings, children, or spouse). There are no limits on the amount for gifts from relatives, and they are exempt from income tax. However, gifts from non-relatives exceeding Rs. 50,000 are taxable as income in the hands of the recipient. Property gifts also follow the same principle, but stamp duty must be paid for registration, and the transfer must be legally documented. Therefore, NRIs need to be mindful of the relationship with the donor and the value of the gift to ensure compliance with tax regulations in India.
