A gift is Money or House, Shares, Jewelry etc. that is received without any consideration, or simply an asset received without making a payment against it and is a capital asset for the Recipient. It can be in the form of cash, movable property or immovable property.
(A capital asset typically refers to anything the individual owns for personal or investment purposes.)
The person who is giving a gift is called the ‘Donor’ and the person receiving the gift is known as ‘Donee’.
The Finance Bill 2019 has imposed tax on any sum of money paid or any property situated in India, transferred by a person resident in India to a person outside India (NRI), as it would be deemed to accrue or arise in India. Also Amendments at the time of passing of Budget 2019 have specifically defined the ‘person outside India’ as non-resident or foreign company.
Section 9 of the Act relates to Income deemed to accrue or arise in India. Under the Act, non –residents are taxable in India in respect of income that accrues or arises in India or is received in India or is deemed to accrue or arise in India or is deemed to be received in India. Under the existing provisions of the Act, a gift of money or property is taxed in the hands of donee, except for certain exemptions provided in clause (x) of sub-section (2) of section 56. Now amendment has been introduced in budget 2019 to ensure that such gifts made by residents to persons outside India are subjected to tax in India. For the purpose of same, a new clause is inserted in Section 9 to provide that any income arising from payment of any sum of money, or transfer of any property situated in India, by a person resident in India to a person outside India shall be deemed to accrue or arise in India.
In section 9 of the Income-tax Act, in sub-section (1), after clause (vii), the following clause shall be inserted with effect from the 1st day of April, 2020, namely:––
“(viii) income of the nature referred to in sub-clause (xviia) of clause (24) of section 2, arising from any sum of money paid, or any property situated in India transferred, on or after the 5th day of July, 2019 by a person resident in India to a person outside India.”
This means that the origin of the gift becomes important for tax purpose, instead of the destination of the gift abroad.
NRIs therefore need to consider the possibility of attracting tax on any transaction in the nature of gifts which is received in India for inadequate consideration.
Below chart depicts the status of taxability:-
|Is the total value of gifts received less than Rs 50000?
|Did you receive Gifts on Marriage ?
|Did you receive Gifts from Specified Relatives?
|Did you receive Gifts from Other than Specified Relatives ?
|Not taxable if Value is < 50,000/-
|Did you receive a Gift which is a prescribed Movable Property?
|Taxable if Value > Rs 50,000/- & from Other than Specified Relatives
|Did you receive a Gift which is a prescribed immovable Property? (Land/House)
|Taxable if SDV > Rs 50,000/- & from Other than Specified Relatives
Note:-SDV means the value adopted or assessed or assessable by any authority of the Central / State Government for the purpose of payment of stamp duty in respect of an immovable property.
The specified relatives list in terms of Section 56 of the Income Tax Act is fairly wide. It includes brothers and sisters, and their spouses. Gifts to this category will not attract any tax. But acquaintances, friends, and other close family relations would come under the purview of the tax.
Key points to be kept in mind.
One observes the following typical transactions by NRI which may attract tax under the Act:
1. NRI receives credit in NRO/ NRE bank account from friends/relatives which may not be repayable as such persons are not covered under definition of relative.
2. NRI purchases an immovable property or shares and securities of unlisted companies at a price which may not be in accordance with prescribed rules of valuation.
NRIs have to declare all taxable Gifts while filing Income Tax Return in India. The Gift amount can be shown under the head ‘income from other sources’.
So now in these situations, the relevant article of applicable DTAA shall continue to apply for such gifts as well. This amendment will take effect from 1st April 2020 and will, accordingly, apply in relation to the assessment year 2020‐21 and subsequent assessment years.