Gifting and FEMA
In family wealth planning, gifting is often seen as a simple, emotional act — a way to transfer wealth, provide security, or plan succession. But when family members are spread across borders, gifting quietly becomes a foreign exchange transaction governed by FEMA.
In my experience, many FEMA violations do not arise from aggressive structuring or tax planning. They arise from informal family gifts — shares transferred without valuation, money routed through the “wrong” account, or property gifted assuming consent and intent are enough.
FEMA is not concerned with intent. It is concerned with who is gifting, who is receiving, what is being gifted, and how it is being transferred. In this article, let us explore the nuances of gifting from FEMA perspective:
1. Why Gifting Is a FEMA Issue and not only family matter:
Under FEMA, any transaction between a resident and a non-resident involving money, shares, or property is regulated — even if there is no consideration.
The most common misconception is this:
“If there is no sale and no money involved, FEMA does not apply.”
That assumption is incorrect.
Gifts are treated as capital account transactions under FEMA and must comply with:
- Permissibility rules
- Valuation norms
- Reporting requirements
- Sectoral restrictions
2. Gifting of Shares:
Who can gift shares?
- Resident → NRI/OCI
- NRI/OCI → Resident
- NRI/OCI → NRI/OCI
All of these are permitted subject to conditions.
Key FEMA conditions
- Shares must be of an Indian company
- The recipient must be eligible under the FDI policy
- Sectoral caps must not be breached
- Pricing guidelines apply — gift value cannot exceed prescribed limits
Even though there is no consideration, FEMA requires:
- Valuation of shares
- Reporting via FC-TRS
Practical pitfall
Family companies often transfer shares at “nominal value” to children abroad. This triggers valuation-based FEMA violations and later compounding.
3. Gifting of Money:
Resident gifting money to NRI
- Permitted under the Liberalised Remittance Scheme (LRS)
- Subject to the USD 250,000 annual limit
- Must be remitted through an authorised dealer bank
NRI gifting money to resident
- Permitted through:
- Inward remittance, or
- Debit to NRE / FCNR(B) / NRO accounts
What is not permitted
- Cash gifts
- Routing funds through overseas business accounts
- Gifts via crypto or informal channels
Overlooked issue
Many families mix resident funds and NRO funds, creating FEMA exposure even though the gift itself is legitimate.
4. Gifting of Immovable Property — Highly Restricted, Highly Sensitive
Permitted gifts
NRIs/OCIs may gift residential or commercial property to:
- Resident Indians
- Other NRIs/OCIs
Prohibited gifts
- Agricultural land
- Plantation property
- Farmhouses
These cannot be gifted by or to non-residents, even within the family.
Common misconception
Adding a child’s name “only for inheritance planning” still counts as a transfer and violates FEMA if the property is restricted.
5. Inheritance vs Gift — A Critical FEMA Distinction
FEMA treats inheritance and gifting very differently.
- Inheritance:
- NRIs/OCIs can inherit any property, including agricultural land.
- No prior RBI approval required.
- Gift:
- Restricted properties cannot be gifted to non-residents.
Many families attempt to “gift now instead of waiting for inheritance” — often unintentionally violating FEMA.
6. Reporting & Documentation — Where Scrutiny Begins
Gifts involving shares or money typically require:
- Bank advice / FIRC
- Valuation report (for shares)
- Board resolutions
- FC-TRS filings (for share gifts)
Missing documentation does not invalidate the gift under family law — but it does create FEMA exposure.
7. Repatriation — The Silent Risk
Gifted assets do not automatically become freely repatriable.
Examples:
- Shares gifted to an NRI may be subject to pricing and repatriation limits on exit.
- Property gifted to an NRI may fall under USD 1 million annual repatriation cap.
- Money gifted into an NRO account may face repatriation restrictions later.
Families often realise these issues years later, when liquidity is needed.
8. I see the following common FEMA pitfalls:
- Assuming “no consideration” means no FEMA compliance
- Transferring shares without valuation
- Gifting restricted property to NRIs
- Mixing resident and non-resident accounts
- Ignoring reporting timelines
- Treating inheritance and gift as interchangeable
These issues surface during:
- Sale of shares
- Repatriation requests
- Family settlements
- Investor or bank due diligence
9. Safe Gifting:
Based on experience, a few disciplined steps make all the difference:
- Identify FEMA residency first — tax residency is not enough
- Check asset-specific FEMA rules before gifting
- Obtain valuation where required
- Route funds strictly through permitted channels
- File mandatory reports on time
- Plan repatriation at the time of gifting, not later
- Document family intent properly — informal arrangements create risk
10. Gifting Is Emotional, FEMA Is Technical
Gifting within families is driven by trust and emotion. FEMA, however, operates on rules, classifications, and documentation.
Most FEMA violations I see in gifting are not deliberate. They are the result of assumptions, informality, and lack of cross-border planning.
Handled correctly, FEMA does not restrict family gifting. It simply asks for structure, clarity, and compliance.
And when families get this right, they protect not just wealth — but also peace of mind across generations.
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In case you have any concern and queries or need any support under FEMA, FDI, ODI, GST and International Taxation, you may like to contact us.
Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, ca.abhimishra@gmail.com
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