Income Tax on Gifts from NRIs and Relatives in India

by Guest Blogger on November 21, 2012

in Tax

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com

Generally, gifts are not regarded as Income chargeable to tax. However by virtue of Section 56(2) any sum of money exceeding Rs. 50000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under other sources subject to exclusions as below:

  1. Receipts on occasion of marriage of the individual
  2. Receipts under a will or inheritance
  3. Receipts received from a relative.

Since 1/10/2009, Section 56(2) has been amended and the scope of gifts and will include even immovable properties or any other property besides sums of money under its ambit.

Gifts that are not taxable at all are those that are received from relatives. Relatives are defined by the following relationships of the individual:

  1. Parents
  2. Parents siblings and their spouse
  3. Siblings
  4. Spouse of siblings
  5. Daughter and son
  6. Spouse of daughter and son
  7. Spouse
  8. Spouse’s parents
  9. Spouse’s siblings and their respective spouse.

Even NRIs are covered as long as they fall in the category of relatives. Therefore an individual Indian resident can receive a tax free gift from an NRI as long as he/she is that individuals relative. Any amount can be received as a gift from a relative. Also the purpose for which the gift is received from a relative is inconsequential as it is completely tax free. Thus a gift received can be used for any purpose ranging from purchasing shares to buying property to even simply keeping it with the bank.

Note on gifting on immovable properties

There is a valuation aspect involved in gifting of immovable properties:-

  1. If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
  2. If the property is gifted for a consideration, then the actual value of the property will be taken

In case of other properties:

  1. If gifted without consideration and fair market value exceeds 50000, then the fair market value will be taken as the final value
  2. If gifted for a consideration and the FMV less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.

As mentioned earlier NRIs can also give gifts to resident Indians. Therefore, It is important to understand the meaning of an NRI as per the IT act.

An individual will be treated as a non resident in India in any previous year if he fulfils any of the following two conditions:

  1. he/she is NOT in India in that year for period or periods amounting in all to 182 days or more, or
  2. Having within the four years preceding that year NOT been in India for a period or periods amounting in all to 365 days or more, and has NOT been in India for 60 days or more in that year.
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{ 216 comments… read them below or add one }

Falan Harrington August 3, 2014 at 6:30 am

Hi, I need some help. A friend of mine (NRI) wanted to transfer 5lakhs to his NRE a/c so he could make a Fixed deposit. However he transfered it to sisters a/c by mistake. Now she is unable to transfer that amount into his a/c as its an NRE a/c. So what can be done here?

Reply

Kunj August 4, 2014 at 4:02 pm

My father want to gift me car from australia so i have to pay import duty to indian government ?

Reply

Sabal jain August 11, 2014 at 8:20 am

Hi, my grandfather’s brother is giving me a loan . He is citizen of USA . Do I need to pay tax on the loan ?

Reply

vinoth August 19, 2014 at 5:35 pm

What if i am gifted 1Lac from a trust should i be paying the tax for it.

Reply

Sneha August 24, 2014 at 6:57 pm

Hi Mani. Thanks for the wonderful article and the follow up comments – it makes life easy :)

I wish to liquidate the gold that I had received from my NRI parents and brother for my wedding. For the purpose of determining the LTCG tax I have done the following calculations. I’d appreciate if you could you please confirm if the following calculations are correct.

Cost of acquisition of Gold(Aug 2010) – Rs.41,75,795/-
Cost of acquisition with indexation – Rs.41,75,795 x 1024/711 (CII 2014-15/CII of 2010-11) = Rs.60,14,084/-
Sale Consideration = Rs.65,15,000/-
Capital Gains = Rs.65,15,000 – Rs.60,14,084 = Rs.5,00,916/-
LTCG tax of 20% on this amount = Rs.1,00,183/-

So if I understand correctly I have to pay Rs.1,00,183/- as LTCG tax?
I understand that I should declare this amount in my returns.
Secondly, my parents have not preserved the purchase bills of the gold. In that case, is it better to draft a gift deed from them in case the ITO wishes to verify the origin of the gift. Will not having the purchase bills pose any problems for me or my parents?

Reply

antony August 25, 2014 at 5:34 pm

Hello Sir,

My sister and brother-in-law stay in Canada and are NRIs. We are staying in rented house in Bangalore. We wish to buy a residential plot in Bangalore. My sister has money in an NRE account of HDFC bank. Can my sister transfer Rs. 50 lakh to my SB account? To simplify the process of purchasing and registering plot, can I purchase the plot in Bangalore in my name? Will I have to pay tax for Rs.50 lakh?

Reply

antony August 25, 2014 at 5:52 pm

My sister and brother-in-law are NRIs and live in Canada. We stay in a rented house in bangalore. We wish to buy a residential plot in Bangalore. My sister has money in an NRE account of HDFC bank. Can my sister transfer Rs.50 lakh to my SB account in HDFC bank?

I being her brother, can I buy the property in my name? Do I have to pay tax on Rs.50 lakh which I will use to buy plot? We plan to construct a house after 2 years and occupy it ourselves. Please advice.

Reply

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