Gifts in India are taxable under the Income Tax Act. Gift can be in cash or kind (moveable or immoveable property and other assets specified under the Act). A resident Indian can make a gift to an NRI through a gift deed, but there is a claim on gifts received by NRI.
NRIs are taxed for income that arises in India or is received or accrued in India or deemed to have arisen, received, or accrued in India.
A gift to an NRI by the way of gift deed from a relative is not income and thus not chargeable to tax. Gifts in excess of Rs 50,000/- are subject to tax if gifted by a non- relative. There are certain other exemptions. No tax is payable if a gift is given in contemplation of the recipient’s marriage, death of the donor, or under a Will or inheritance.
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Gift by Remittance
In case of a gift by remittance from a resident Indian, it was not taxed as the transaction is completed in a foreign country bank account where the NRI receives the money. This income is neither received in India nor accrued in India, therefore, not liable for taxation. The gift of money made to NRI was not charged for tax. There is no claim on such gifts received by NRI.
Under the scheme called Liberalized Remittance Scheme (LRS), a resident Indian can remit amount up to $250,000 a year for various purposes like gift, donation, maintenance of close relatives, etc.
Loopholes in Gift Deed
A resident can remit to an NRI even if he is not a relative. And there is no claim on such gifts received by an NRI through gift deed. Taking advantage of the same, many rich people in India used to transfer by way of gift a considerable amount of money to NRIs and avoid tax on their taxable income.
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Now there is an amendment in the rule. It says that the sum of money received by a person outside India from a resident, without any consideration, is deemed to accrue or arise in India. Thus, the gift of money received by a person outside India by way of remittance from a resident would be taxable in India. But if the donor is a relative, remittance is not taxable i.e., no claim on this gift received by NRI if he is a relative of donor.
The amendment is only for the gift of money and not property. Accordingly, if the property situated in India is transferred to an NRI by way of gift through a gift deed, tax is payable by NRI if the value of such a gift is more than Rs 50,000/-.
Gift Taxation Rules
A person outside India means a non-resident or a foreign company. All the money transfers without any consideration on or after July 5, 2019, will be treated as taxable from FY 2019-20.
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Thus for Gift taxation purposes, the place where the gift originated becomes significant rather than the destination.
An NRI has to file his income tax return in India and disclose his income from all the Gifts received. NRIs are now included as income tax assesses and liable for a claim on the gifts received by them through a gift deed.
However, if India has signed a double taxation avoidance treaty with the country of the recipient, the relevant clause will apply. In such a case, the tax may not be payable.
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