income tax law
Non-resident Indians (NRIs) often receive money, property or other gifts from their parents, siblings or other relatives in India. In such a situation, the biggest question is whether tax will have to be paid on these gifts? The answer to this is not only related to Income Tax Act, but also to the rules of Foreign Exchange Management Act (FEMA). Therefore, it is important to understand both the rules before accepting any gift.
When do you not have to pay tax?
Under the Income Tax Act, if an NRI receives a gift from a prescribed relative, no tax is levied on it, no matter the amount of the gift. Relatives include parents, spouse, siblings, grandparents, children and some other close relations.
However, if the gift is received from a person who does not fall in the category of relative as per Income Tax law and its total value exceeds ₹50,000 in a financial year, then this amount can be considered as income of the NRI and can be taxable.
FEMA rules are also important
Just following income tax rules is not enough. If the gift involves foreign currency, transfer of funds outside or within India or other foreign transactions, FEMA rules may also apply.
If a person resident in India gives a gift to an NRI, it is important to ensure that the transaction is in accordance with the provisions of FEMA. In some cases, it is mandatory to follow the method of sending money, banking channel and other regulatory conditions.
What are the rules on gifting property or shares?
If gifts are given not just cash, but also real estate, shares or other financial assets, different rules may apply. Especially while transferring property or shares to NRIs, it is important to follow FEMA and other regulatory provisions. In many cases the rules may change depending on the type of asset and the status of the person making the gift.
Keep these things in mind before buying a gift
Experts say that before accepting a gift, NRIs should clarify whether the person giving the gift comes under the category of ‘relative’ as per the Income Tax Act or not. Apart from this, documents related to the gift, bank records and if necessary, the gift deed should also be kept safe.
If the gift amount is large or involves property, shares or foreign currency, it would be better to consult a chartered accountant or tax expert to ensure proper compliance with tax and FEMA rules. This can avoid tax disputes or regulatory problems in future.
