Understanding NRI Gift Tax Rules and Exemptions in India

Are you a Non-Resident Indian (NRI) travelling back to India with gifts for your dear ones? It sounds very Santa Clause-esque, but unlike Santa’s, your gifts might attract the attention of the taxman. 

On a quick search on the internet, you may find that the Gift Tax Act was abolished in India around 25 years ago. But don’t be tricked by that. Gift tax very much exists – hiding in plain sight in the pages of the Income Tax Act. 

First, bank it right !
 

Whether it is gifts or remittances, the life of an NRI becomes easier when the right banking services are in place. NRIs visiting India this holiday season can get the best of banking experience with Metra Trust NRI Banking Services.

The fully digital Metra Trust NRI Savings Account earns you interest of up to 7.25% per annum in monthly interest credits. The user-friendly mobile app lets you handle all your gift transfers, remittances, and investments at the tip of your finger. 

You also get a VISA Signature International Debit Card with the NRE Savings Account and a VISA Signature Domestic Debit Card with the NRO Savings Account, each loaded with features like airport lounge access, unlimited ATM withdrawals, accident insurance coverage, and more.

Gift tax rules for NRIs
 

Under the erstwhile Gift Tax Act, any gift exceeding a value of Rs 50,000 was taxable at a rate of 30%. This excluded gifts exchanged between relatives. Since April 1, 2005, gift tax in India has been re-introduced, under the provisions of the Income Tax Act.

As per section (3) of the Gift Tax Act, 1958, gift tax was abolished in India in 1998. Presently, gifts received (i) from relatives or (ii) on the occasion of marriage, or (iii) under a Will, or (iv) in contemplation of death of the donor or (v) where aggregate value of gift is less than INR 50,000/- are tax-free under Section 56(2)(x) of the Income Tax Act, 1961.

Gift from an NRI
 

When it comes to gift tax, the Rs 50,000 threshold continues even today. Key points in this regard include -

• If the amount of the gift is more than Rs 50,000, the entire amount is taxable in the hands of the recipient under the income head, Income from Other Sources
• However, gifts received from relatives, as defined under section 56(2) of the act, are exempt from this tax liability
• To avoid tax liability, fulfilment of section 56 is not enough. The recipient must also satisfy section 68 of the act, i.e. offer a satisfactory explanation to the Income Tax Assessing Officer about the nature and source of any sum credited to your account
• A gift received from a non-resident as a marriage gift or through a will is exempt for the giver as well as the receiver, irrespective of the relationship between the two

Gift to an NRI 
 

Here's what you must know about gifts received by an NRI from a resident Indian -

• The overseas location of the recipient is of less importance in the case of NRI taxation. Instead, the source of the income is considered. For a non-resident, income received or earned in India, or considered to be received or earned in India are taxable
• Just as in the case of gifts from NRIs, a gift to NRI above Rs 50,000 made by friends or acquaintances is taxable. It is added to the NRI’s taxable income and taxed as per their income tax bracket
• Additionally, there is a limit of $250,000 per financial year on gifts to NRIs, under the Liberalised Remittance Scheme
• Gifts by resident Indian relatives to NRI are exempt, as are gifts up to a value of Rs 50,000 given by resident Indian friends and acquaintances
• Monetary gifts to NRIs can be made to their NRO account only
• While gifting immovable property, the sale proceeds remittance cannot exceed $1 million in a year. Securities gifted cannot be more than 5% of the company’s paid-up capital. Cash gifts cannot exceed Rs 2 lakh 

Also read - How to open an NRI account

​​The NRI gift deed

Section 17 of the Registration Act 1908 says that a gift deed must be maintained in the case of gifts involving NRIs. It is a deed that is signed on a stamp paper and is signed by both the donor and the receiver of the gift.

FEMA requirements
 

The guidelines given under the Foreign Exchange Management Act, 1999 about gifts involving NRI are,

• An NRI or Overseas Citizen of India (OCI) can gift a resident through their NRO or NRE account in the form of a remittance
• The power of attorney of these accounts cannot give a gift to a resident. The transaction must be made by the NRI/ OCI account holder only
• NRI/ OCIs can gift cash to residents, but a resident cannot hold more than $2000 or equivalent at any given time

​​Understand, plan, and then gift 
 

As an NRI, you must understand the gift tax rules while giving and receiving gifts. It will help you and your resident Indian relative, friend, or acquaintance to save gift tax and also avoid non-compliance. A few tips that stand out are -

• You must keep the Rs 50,000 rule in mind as anything above can make the entire gift taxable
• A gift to a relative is exempt, but you must know who qualifies to be a relative. Relatives are father, mother, siblings, spouse, children, grandparents, grandchildren, child’s spouse, grandchild’s spouse, sibling’s spouse, stepmother, step-children, step-sister, and step-brother
• You can wait for an upcoming marriage to gift your dear one, given the gift tax exemption on it
• Receiving a cash gift of more than Rs 2 lakh can result in a penalty
• The correct bank account must be used while giving or receiving gifts, be it NRO, NRE, or either

What’s a 'gift' and what’s not ?
 

Gifts under gift tax can include money, movable property with no or inadequate consideration and with a fair market value of more than Rs 50,000, and immovable property with no or inadequate consideration. 

Property may include jewellery, artwork, bullion, antiques, watches with precious metals, etc. However, items like cars and white goods are not included in the definition of property. Besides, as mentioned earlier, wedding gifts, inheritances, or any gift below Rs 50,000 is not considered a gift. 

According to the Union Budget for 2023-24, any monetary gift above Rs 50,000 received by a not-ordinarily resident Indian from a resident Indian would be deemed to arise in India. From 1 April 2024, such a gift will be taxable.

Also read - NRI outward remittance: How to send money home without commissions?

​​Unbox happiness
 

By making sure that you understand the NRI gift tax rules in India and by planning your gift amount and timing right, you can put a beaming smile on the faces of your dear ones. With Metra Trust NRI Banking, spread happiness on your India visit in a click or two. 

Note: The above details are for information purposes only. The Individual is required to consult their own tax consultant for understanding the tax implications on any transactions done by them.  
 

Disclaimer

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