Receipt of Gifts and Inheritances by NRI

An NRI can have the interest in the following assets in India, which he receives by Gift or by inheritance-

i. Money or Liquid funds

ii. Immovable properties

iii. Jewellery, painting, art piece or other valuable goods

iv. Shares in companies registered in India

v. Interest in Limited Liability Partnerships (LLPs)

Any such receipt through gift of inheritance is regulated by FEMA and also by the Income Tax Act, 1961.

Implications of FEMA on such assets are as under-

Money/ liquid funds

An NRI is allowed to receipt money as gift from a resident Indian under the Liberalized Remittance Scheme (“LRS”), within the limit of USD 250,000 in a financial year as prescribed therein. The donor and the recipient need not be close relatives. It is allowed under the FEMA provisions, however, the gift will be taxable in the hands of the NRI recipient (if exceeding INR 50,000) under the Income Tax Act.

A resident individual can also gift money to a close relative NRI vide a cheque or net banking to his NRO account in India, subject to overall limit of USD 250,000 in a financial year.

The NRI can take out the money already lying in his NRO account subject to a limitation of USD 1 million per financial year.

Definition of Relative in FEMA to mean the definition as per the Companies Act, 2013 which include- spouse, father, mother, son, son’s wife, daughter, daughter’s husband, brother and sister of the individual.

Immovable property

Gift of immovable property located in India, is permitted to NRI. Exceptions to the immovable properties to be received on gift by NRI are- agricultural land/ farm house/ plantation property.

The gift of immovable property is allowed even to the NRI who is not a relative, however, in case of Income Tax Act, if the gift is without a consideration and to a non-relative, the receipt of the gift is taxable in the hands of the recipient where the stamp duty value would be the basis for computing deemed income.

The NRI can take out the sale proceeds of such properties out side India, from is NRO account within the allowed limit of USD 1,000,000 per financial year.

This is also applicable where the property has been received by the NRI/ PIO by way of inheritance/ legacy.

Shares and securities in an Indian company

A resident individual can gift the securities held in an Indian company,  such as equity shares, debentures, preference shares, share warrants etc) to an NRI subject to a prior approval from the Reserve Bank of India. Also the following conditions need to be fulfilled –

• The NRI recipient is eligible to hold such a security under relevant Regulations;
• The gift does not exceed 5% of the paid-up capital of the Indian company;
• The applicable sectoral cap in the Indian company is not breached;
• The donor and the recipient are ‘relatives’ within the meaning in section 2(77) of the Companies Act, 2013; and
• The value of security to be transferred by the donor together with any security transferred to any person residing outside India as gift during the financial year does not exceed the rupee equivalent of USD 50,000.

Gift of securities are regulated by the FEMA provisions  which puts bar  to a certain quantum and also prior approval from the Reserve Bank of India is required and the parties to the gift transaction are required to be “relatives”.

The gift of securities between the relatives are exempt from taxes, however if between the non-relatives, its is taxable where the fair market value of such shares is the basis for computing the deemed tax liability in the hands of the NRI recipient.

The NRI can receive the Securities on inheritance and no such restrictions are there. The remittance of sale proceeds (post capital gains tax) should be be within the USD 1 million limit.

Interest in LLP

NRI can contribute to the capital of an LLP, however the LLPs should be engaged in sectors where 100% FDI is allowed under automatic route.

There is no clear provision on transfer of an interest in LLP from resident to NRI under the FDI policy. Unless specifically permitted, gift of an interest in LLP to an NRI is prohibited.

Conclusion

Before receiving any funds/ assets in India, the NRI must check both the provisions- FEMA as well as Income Tax to avoid any complication and non-compliance and the money being struck in India.