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.Red Gift Box

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:-

 Sr no Particulars Taxability
1 Is the total value of gifts received less than Rs 50000? Not taxable
2 Did you receive Gifts on Marriage ? Not taxable
3 Did you receive Gifts from Specified Relatives? Not taxable
4 Did you receive Gifts from Other than Specified Relatives ? Not taxable if Value is < 50,000/-
5 Did you receive a Gift which is a prescribed Movable Property? Taxable if Value > Rs 50,000/- & from Other than Specified Relatives
6 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.

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29 Comments

  1. Ved parkash Yadav says:

    My father wants to buy a land in India. i want to send him cash 0f 40 lacs through my NRO account in India . Do i need to make cash gift deed for this? Will my dad has to pax TDS on this amount ?

  2. Anoop Singh says:

    I am an NRI and If I send a sum of 5lacs to my sister in law, is that taxable on her end? How is she supposed to show that in her income, she is a homemaker.

  3. Sachin says:

    Hello,

    Me and my wife both are NRI , and have NRE bank account.
    I have transferred the money from overseas to my NRE bank account in India. Later after 1 year I have transferred 40lakh from my NRE bank account to my wifes NRE bank account .
    She had invested that amount in equity via NRE account and have some short term gains. Please advise that short term equity gain should be clubbed to my income or its purely my wifes income and should be shown in her income tax return only.

    Thanks
    Sachin

  4. vishal singh says:

    NRI- Received above 5 lac from sibling in india in saving account,under which head to show in ITR-2, althoug it is non-taxable as gift from relative.

    1. Chandani says:

      The gifts shall be disclosed as taxable income in the ITR under the Schedule Salary or Schedule OS, depending upon the nature of the gift. It is advisable that the gifts which are specifically exempt from the tax should be disclosed in Schedule EI of the ITR.

  5. Satyashekhar says:

    If NRI quits the job and comes to India for a break but not able to go back overseas for new job due to covid in 120 days, what will be his residential position and taxability on investment this year ?

    Can he temporarily transfer / distribute in his close relative names as gift ? Then taxability ?

  6. SHEKHAR S says:

    If I give gift of say cash or shares Rs.3 lacs to my father’s sister who is senior citizen, the income earned by her will be not taxable right ?

  7. bhavesh sharma says:

    i am indian and one of my italian friend ( he is italian ( Non-Relative.) ) want to send me money as a gift – he will make deed and notery of 255000 inr please guide me about tax and rules

    1. Chandani says:

      The provisions relating to gift tax have been dealt with under Section 56(2)(x) of the Income-tax Act, 1961. Gifts up to Rs 50,000 per annum are exempt from tax in India.

      Since amount received will be more than Rs 50000, You have to disclose entire amount received in Income Tax Return as income under the head ” Income from Other sources” and accordingly pay Tax on same.

      This opinion is expressed solely for your own purpose and without any other commitment on our part.

  8. Dolly Moga says:

    In FY 2017 my father gifted two house’s to my NRI son who pays income tax in India & same gift of house’s was not mentioned in his ITR of AY 2018-19. Now, what to do and what are the implications/complications?
    Thanks
    Dolly Moga

    1. Chandani says:

      House received will be treated as a Gift from Relative. ( Grandfather) and accordingly exempt from Tax. It would be prudent to document the gift in a legal document viz. a gift deed and place it in your records

      However Income which is derived from house like rent etc becomes independent income and accordingly that will be taxable.

      This opinion is expressed solely for your own purpose and without any other commitment on our part.

  9. Hemraj Jethanandani says:

    1. NRI transfers more than Rs 50000 to his Son who is also NRI in yr 2019-2020. what are tax implications
    2. ICICI Bank is refusing my Son to remit money from his NRO account received as GIFT from his Father who is also NRI. Is there any change in rules

    1. Chandani says:

      The balance of the NRE or NRO accounts can be made only to the account holders own account situated abroad, meaning the account holders name must be the same on both the NRE or NRO account and the foreign account in which the funds are being sent to. Repatriation of funds to a third party is not permitted.

  10. Prince Kumar says:

    Will there be any tax implications for my wife if I transfer money to her savings bank account in India in which she is already running Sip in mutual funds. Though me and my wife are NRI.DOES she also need to open NRE ACCOUNT in India?

  11. Avantika Rastogi says:

    I am an NRI ,Can I transfer funds to my wife’s savings account in India (wife is also NRI) . Also she is running some SIP from that account, Will there be any tax implications for me or for her in India?

    1. Chandani says:

      NRIs don’t have to pay taxes when they transfer money to India. Since they already pay tax on the amount earned in the country where they are working, they are not required to pay further tax on the same money. This is irrespective of whether they keep the money in Indian Rupees or US Dollars.

      There is no tax implication for you or for your wife for transferring money from one account to another, as long as your wife does not invest on your behalf. NRIs must convert all their resident bank accounts to non-resident (ordinary) or NRO or non-resident external or NRE account. Also, any interest income earned from a bank account (except interest from NRE account which is tax-free) shall be included in the income tax return of the first holder of the account. An NRI must file tax return in India, if income from India exceeds Rs2.5 lakh in a financial year.
      There are few other things that you need to consider when transferring money to India. For instance, if you are sending money for investment, it is recommended to open an NRE savings account for fund transfer. This is because interest earned on fixed deposits in NRE (Non-resident External) accounts are free from taxation in India.

      This opinion is expressed solely for your own purpose and without any other commitment on our part.

  12. Neela says:

    I’m an NRI (US citizen). If my father in India gives me a cash gift (in rupees), is it taxable?
    If the gift is invested in NRO FDs, what would be my tax rate?
    If I inherited this money, would that attract tax? Thank you.

    1. Chandani says:

      Gifts from specified relatives are exempted, regardless of amount. These relatives are spouse, father, mother, brother and sister. They also include any lineal ascendant or descendant of the individual or his spouse as well as brother/sister of the spouse. However note that even though the gift itself is exempt in the hands of the recipient, the income generated from the gift may be taxable under the clubbing of income provisions of the Income Tax Act.
      For example, if Mr A gifts Rs 10 lakh to his wife, the same would not be added to the income of his wife. However if his wife creates an FD from the same and earns interest, the interest would be added to the income of the husband.

  13. PremR says:

    Im a NRI and my in-laws are planning to buy and they are short of money . so im planning to send 40Lacs money to my in-laws indian account directly. Will this be considered as taxable are per law or will this be problem . Please help to clarify

    1. Chandani says:

      NRIs don’t have to pay taxes when they transfer money to India. Since they already pay tax on the amount earned in the country where they are working, they are not required to pay further tax on the same money.

      If you transfer money to your parent’s account there is no tax implication for you as a giver or for them as a receiver. They don’t need to pay tax on this gift. As per the income tax act, exchange of gifts between relatives are exempt from tax. Relatives includes your parents, your spouse, your spouse’s parents, your brother & sister and their spouses, including your spouse’s brother & sister and their spouses. Any of you or your spouse’s lineal ascendant or descendant are also included. Any gifts in cash, bank transfer or cheque or in kind exchanged between you and these relatives is not taxable. This is irrespective of whether they have any taxable income or not.

      This opinion is expressed solely for your own purpose and without any other commitment on our part.

  14. Abhijit says:

    Hi,
    I am planning to book a flat in the name of my wife (Resident Indian) and daughter (Minor – Resident Indian). Can I transfer money directly to builder account through our joint NRO account or have to transfer money to wife’s indian account and then issue a cheque or wire transfer to builder. Please advice.

    Thanks and Regards,

    Abhijit

    1. Chandani says:

      Answer: Payment for immovable property has to be received in India through banking channels and is subject to payment of all taxes and other duties/ levies in India. The payment can also be made out of funds held in NRE/ FCNR(B)/ NRO accounts of the NRIs/ OCIs. Payments should not be made through travellers’ cheque and foreign currency notes.

      1. Abhijit says:

        Is there any limit for a year to transfer money from NRO account to wife account as a gift. Also which is tax effective – to transfer money from NRE account or NRO account ?
        Also buying a under construction flat in the name of a housewife from this gift money attract any tax implications to husband or housewife ?

  15. Dimpal says:

    Mr. X had transferred Rs. 77 Lac to Foreign National as Gift lived in Dubai. Now Mr. Wants to revert this amount in his saving account. Pl give a proper solution in terms of FEMA and income tax.

    1. Chandani says:

      If the person who has received Gift wants to invest in Saving account in India then it will be taxable in India and he has to book in Income Tax Return under “Income from Other sources” and pay Tax since it is recd from Non-Relative.

  16. Padmanabh says:

    Under the new provisions of the Act, a gift of money or property is taxed in the hands of NRI donee. Please specify what are the exemptions provided in Section 56(2)(x).Please clarify if after April 1, 2020 exemptions provided in clause (x) of sub-section (2) of section 56 could be availed of in respect of gift of money or property to NRI donee.

    1. Chandani says:

      Some Exempt gifts
      If any gifts are received in following situations or from below mentioned people then those gifts will be fully exempt under Income Tax.

      Any sum of money or any property received:

      from any relative; or
      on the occasion of the marriage of the individual; or
      under a will or by way of inheritance; or
      in contemplation of death of the payer or donor or
      from any local authority or
      from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
      from or by any trust or institution registered under section 12A or section 12AA; or
      by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution or
      by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii) of section 47; or
      from an individual by a trust created or established solely for the benefit of relative of the individual.
      any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto
      Note: In the above-mentioned points the term Relatives means

      – Spouse of Individual

      – Brother & Sister of Individual

      – Brother & Sister of Spouse of Individual

      – Brother & Sister of either of the parents of Individual

      – Any Lineal ascendants or descendants of the individual

      -Any Lineal ascendants or descendants of the spouse of the individual.

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