Tax for NRIs on gifts of money and property from resident Indians received through gift deeds

Tax for NRIs on gifts of money and property from resident Indians received through gift deeds

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.

Recommended reading: Buying And Selling Property In Times Of Coronavirus

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.

Recommended reading: Eviction Order

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.

Recommended reading: Legal Remedies For Encroachment Of Property By Neighbor

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.

As a top lawfirm in India, we offers a wide array of services to individuals as well as organizations in matters of taxation in India. All the tax issues faced by NRIs are handled by our premier legal management firm.

NRI Legal Services is now on Telegram. Join NRI Legal Services channel in your Telegram and stay updated.

TDS rules for resident buyer buying property from NRI seller

TDS-rules-for-resident-buyer-buying-property-from-NRI-seller

A resident Indian buyer has to comply with a particular set of TDS rules when he is buying property from NRI. The rules are prescribed as per the Indian Income Tax Law. 

It is advised to take the assistance of an expert in calculation and filing of TDS return to avoid legal hassles. 

It would be easier to understand the nuances of buying property from NRI if we are aware of the correct information.

Read More: Tax implications on a gifted property

First and foremost you should know:

Who is an NRI seller?

NRI seller of the immovable property for TDS is the one who conforms to the status of NRI as per the Income Tax Law in India. The residential status must be mentioned in the sale deed.

Who is liable to pay TDS?

It is the buyer who pays the TDS. 

How is TDS calculated when buying the property?

TDS is calculated on capital gains. 

Capital Gains – it is income from profits earned by sale of a property in India.

  • Short term Capital Gains: profit from the sale of the property within two years of its purchase.
  • Long term Capital Gains: profit earned from the sale of property held for more than two years.

TDS is deducted at the rate of 20% on long term capital gains and 30% on short term capital gains plus surcharge, health and education cess.

In case there is any doubt about the capital gain income, an application can be filed with the income tax authority to know the correct amount. As a precaution, the buyer can ask the seller to bring a certificate from the authorities showing the ascertained amount of capital gain. The buyer must include the details of the same in the sale deed. The residential status must be mentioned in the sale deed. There is a penalty for the buyer if he does not comply with the TDS rules.

Read More: Tax rules for investment in real estate by non-resident Indians

For any exemption available to NRI seller for payment of tax, he has to bring evidence of the same and show it to the buyer.

The amount of tax deducted and the rate applied must be mentioned in the sale deed.

What is TAN? 

A buyer has to get TAN (tax deduction account number) as he has to deposit tax. The buyer must have his PAN number as well as PAN of the seller also before applying for TAN.

There is a penalty if he TDS is deposited without TAN. In the case of joint purchase, all the buyers must obtain separate TAN.

How to Deposit TDS?

TDS is deducted and deposited by the buyer with the Taxation Department or through an authorized bank. After depositing, the buyer files return by submitting form 27Q and then issues a certificate to the seller.

Read More: Tax on capital gains for non-resident of India

Deposit of sale proceeds?

The buyer must deposit the amount in the NRO/NCR/FCNR account of NRI. 

It is better to execute the sale deed when the NRI is physically present in India. It should be done with a PoA holder in unavoidable circumstances. The buyer is responsible for deducting TDS and depositing the same. He must be careful while buying the property and comply with TDS rules. 

Tax implications on a gifted property

Tax implications on a gifted property

Gifting a property is a kind gesture, and it is better to be aware of tax implications for gifting a property.

We had a case where Mr Bhushan, an NRI was gifted with land situated in India by his father, a resident Indian. He wanted to know:

  • If a land in India can be gifted by his father who is a resident Indian
  • The legal requirements to complete this gift transaction
  • Tax implications

Our advice and guidance – Parties to a gift deed:

  • Donor (giver)
  • Donne (recipient)

Donor or Donne can be a Resident Indian or an NRI or a PIO.

Which property can be gifted: Any movable or immovable property like –

  • Land /Building
  • House
  • Jewellery
  • Shares and Securities
  • Paintings, Drawings, Sculptures – Any other work of art
  • Archaeological Collections

Agricultural Land, Farmhouse and Plantation Property in India cannot be gifted to NRI.

Legal Requirements for gift deed:

A gift is a voluntary transfer of movable or immovable property without consideration, by a donor to donne which is accepted by the donne during the lifetime of the donor. For a gift deed, we require:

  • Donor – voluntary transfer
  • Donne – acceptance of a gift
  • Property to be gifted in existence
  • Gift deed preparation
  • Registration of gift deed

Tax Implications:

Both Donor and Donne are charged with the payment of tax as per Income Tax Act, 1961, under certain conditions mentioned as below. Tax is levied in the year in which the gift is received.

Tax Implications

  • Any rent received by the Donor on a gifted property is added to his income for tax purposes.
  • For calculating Fair Market Value and Stamp Duty Value, it is better to take advice from a tax consultant

Exemptions from tax in case of Gift:

  • If the aggregate value of the gift is less than Rs 50,000
  • Gift received from the relatives (list of relatives provided in the Income Tax Act) – No tax irrespective of the value of the gift. In the case of Hindu Undivided family, all members are relatives.
  • On Marriage of the recipient
  • Gift received by will or inheritance
  • From local authority
  • From Charitable Trust/Find/Institution as per the provisions of the Act