Gifts, who would not like to receive them? Gift is something we all like to receive from our beloved ones. But, a very common and frequent question running in the mind of taxpayers is the tax implications of gifts in India.
What is considered as a Gift under Income Tax Act?
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‘.
In this post let’s discuss – Are gifts received by NRIs taxable? What are the latest NRI Gift Tax Rules? What are the tax implications on Gifts given to NRI relatives?…
Latest NRI Gift Tax Rules 2019-20
To understand if Gifts received by NRIs are taxable or not, we need to know the scope of taxation on income earned by the NRIs.
NRI’s Income – Scope of Taxability
Primarily, the sources of income for an NRI (Non Resident Indian) can be classified as i) Indian Income & ii) Foreign Income. Below matrix can help you in understanding the tax implications on income earned by NRI;
Any gift (movable or immovable) received by an NRI from a Relative / non-relative is considered as an income that is accrued outside India (foreign income).
So, gifts given by Indian residents to non-resident Indians, apart from the specified list of relatives, would still be claimed as non-taxable. This is because the tax rules put the onus on the recipient of the gift to make the disclosure and pay tax. As a gift to NRIs means that income is accrued abroad, it remained outside the tax net till date.
If we compare this tax rule with the Gifts given by a Resident Indian to a fellow Resident Indian then gifts among relatives only are tax-exempt completely.
Budget 2019-20 Proposal
If a Resident Indian wants to gift say Rs 1 cr to an NRI friend, he/she can do it without any questions being asked and moreover no tax implications on this for both the parties!
This loophole might have been used for money-laundering transactions as well.
To plug this loop hole, Budget 2019-20 has proposed to remove this tax-free treatment on Gift received by the NRIs from non-relatives.
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.
This means that the origin of the gift becomes important for tax purpose, instead of the destination of the gift abroad.
The changes will be applied for all such transfers made on or after July 5, 2019.
Does this mean that all Gifts received by the NRIs from specified relatives and non-relatives are taxable? Is there any threshold limit on the Gift amount? What is the Gift Tax Rate for NRIs? How to declare the Gift amount, if taxable, in Income Tax Return (ITR)?
- The existing exemptions available to a taxpayer in India will also apply to NRIs.
- Thus, any Gift of value below Rs 50,000 received by an NRI is tax-exempt.
- Any Gift of any value received by an NRI from specified relatives or blood-relations is tax-free. (The term relatives is defined as – parents, spouse, siblings, maternal and paternal aunts etc.,)
- Any Gift received by an NRI on the occasion of marriage from relatives or non-relatives is tax-exempt.
- If NRI receives a Gifts of value more than Rs 50,000 from a non-relative, such Gifts are taxable now.
Type of Gift
Gifts can be in the form of Cash, movable or specified immovable properties.
- Land or building or both (immovable)
- Shares & other financial securities
- Jewellary (precious metals, ornaments, precious stones, etc.,)
- Archaeological collections
- Drawings / Paintings
- Sculptures or any work of Art
- Bullion – Gold bars, Silver bars etc.,
Any other assets which is not listed in the above list will not be charged to tax. For example : If you receive car as a gift from a relative or non-relative, there will not be any tax on it as ‘car’ is not listed in the prescribed list of movable properties as per the IT Act.
What is the NRI Gift Tax Rate in India for FY 2019-20 / AY 2020-21?
The Gift Tax rate is based on the individual’s tax slab rate of the respective Financial Year / Assessment Year.
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 sources’.
So, if the value of the gift is above Rs 10 lakh, the recipient will have to pay 30% tax (if applicable, as per FY 2019-20 slab rates). The tax rate would get higher if the value of the gift, be it payment for studies or a house abroad, is more than Rs 2 crore or Rs 5 crore. In such cases, the highest tax rate for super rich, i.e. 35.7 and 42.7 per cent respectively would apply.
Kindly note that the changes will be applied for all such NRI transfers/gifts made on or after July 5, 2019. The tax implications are w.e.f AY 2020-21.
Another important point to note is that the Budget has proposed that in a treaty situation, the relevant article of applicable DTAA (double taxation avoidance treaty) shall continue to apply for such gifts as well. Hence, it is judicious to consult a NRI taxation expert in this regard.
Continue reading :
- Residential Status check – Online Calculator – NRI or Resident?
- Got a Gift? Find out, if it is Taxable or Tax-free?
- Do I need to file my Income Tax Return?
- What is Double Taxation Avoidance Agreement (DTAA)? | Is Income earned outside India Taxable?
(Post published on 16-July-2019)
What is the best way to buy a property from my US citizen uncle where I am also an NRI. But the property is in India.
So I can reduce capital gain tax of my house by gifting my house to my wife (she has lesser salary than me).
Both are NRI.
Then she sell the house, so she will pay lesser tax in Canada due to low income slab.
So overall tax saving, right? Or is there a catch for such manipulation?
In case you transfer a house property to your wife and do not receive adequate consideration, as per the Act, you will still be considered the ‘deemed owner’ and the income from the asset will be clubbed with your income.
Suggest you to consult a CA who is an expert in NRI (canada) taxation matters.
Related articles :
* Economic Times article – Clubbing of income: When you are liable to pay tax on another’s income
* Got a Gift? Find out, if it is Taxable or Tax-free?
* Sale of Inherited (or) Gifted Property & Tax implications on Capital Gains
Thanks for clarification.
You are welcome dear Vish.. Keep visiting ReLakhs.com!