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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{ 252 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

Jitendra P.S.Solanki September 5, 2014 at 1:20 pm

Falan,

Your siuster cannot transfer Rupee funds to NRE account as it is not allowed. Your friend should speak to the bank that this transaction was done by mistake. They will guide him on the exact procedure of receiving teh funds back into his savings account from which the funds are being transferred.Ideally the funds should first come back to his own account and then he should transfer to his NRE a/c.

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

Jitendra P.S.Solanki September 5, 2014 at 1:22 pm

Kunj,

Yes you will have to.

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

Jitendra P.S.Solanki September 5, 2014 at 2:22 pm

Sabal,

Only some specified relatives are exempted from paying gift tax. If you fall in that list of relatives you won’t have to pay gift tax. Else you will be liable to pay.

Reply

Jitendra P.S.Solanki September 5, 2014 at 5:51 pm
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

Jitendra P.S.Solanki September 5, 2014 at 2:25 pm

Vinoth,

Yes tax will be applicable since only specified relations are exempted from gift tax.

Reply

Jitendra P.S.Solanki September 5, 2014 at 5:50 pm

Hi Vinoth,

A correction- Gift tax is exempted in following case “Gift from any local authority (as defined under section 10(20)) or from any fund / foundation / university or any trust / institution referred to in section 10(23C) or registered under section 12AA”

So you need to check the status of the trust.

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

Jitendra P.S.Solanki September 5, 2014 at 6:35 pm

Antony,

NRIs gifting parents in India through their nRE account si well exempted from gift tax. But in my view its not the case in brother-sister relationship. So you may be liable for tax on amount gifted above Rs 50000.

Read here:

http://www.yourpocketmoney.com/2014/04/gifts-tax-pay-exempted.html

Reply

Rajesh September 2, 2014 at 6:49 pm

Hi,

It would be really wonderful if you can help me with this query.
My father is a retired person, with no income except the interest on Fixed Deposits that he has made. He is planning to sell a house which was in his name and want’s to help me in buying a house (in my name) in another city by gifting me money.
Can you please tell me:
1. What are the legal formalities required on his part to gift me the money?
2. What would be his tax liability?
3. What would be my tax liability because of this gift?

I would really appreciate your response

Many thanks.

Reply

Jitendra P.S.Solanki September 5, 2014 at 6:28 pm

Rajesh,

1. If gift is in form of cash then gift deed is not required. However, it will be preferable if your father do this through a gift deed to avoid any later issues from taxman.
2. He will be liable for capital gains tax
3. You wont have any tax liability

Reply

Dinesh September 4, 2014 at 2:28 pm

Hi,
My father want’s to buy the property (Agriculture Land) on my wife’s name.
Is it possible ? If yes then what are the legal issues with the same ?
we are particularly concern about the IT department asking my wife about the source of money etc.

Reply

Dinesh September 4, 2014 at 2:31 pm

Kindly help on the same.

Reply

dinesh September 5, 2014 at 3:27 pm

Please reply on my query.

Reply

Jitendra P.S.Solanki September 5, 2014 at 6:24 pm

Dinesh,

Thsi relationship is not under specified relationships so gifting provision is not available. Rest if investing on your name will be more feasible. For income tax clarification you should consult a good tax expert.

Reply

dinesh September 7, 2014 at 10:48 am

Hi,
Thanks for your prompt reply. but the above article says that spouse of son and daughter are also under the relations. So can you please reconfirm if father can gift tax free money to the daughter in law ?

Reply

Jitendra P.S.Solanki September 8, 2014 at 11:53 am

Dinesh,

The are two aspect in your case.

Gift- Yes looking closely at the gift tax provision the father- daughter-in-law relationship is exempted from gift tax.

Income – However, any income derived from this property will be taxed in the hands of your father and not your spouse. Here clubbing of income rule will apply which happens in case of gift received from Spouse, Father-in-law or Mother-in-law. Also if your spouse sells this property in future, the capital gains will be taxable in the hands of your father and not your spouse due to clubbing provision. However, its an agricultural land and income/capital gains from it is exempted from tax if it meets certain conditions. So it will be exempted in your fathers income also if it falls under that exemption criteria.

For more clarification you can seek assistance of a tax expert.

Reply

sneha September 6, 2014 at 1:50 pm

Hi Mr.Solanki

Would highly appreciate if you could clarify my doubt

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

Jitendra P.S.Solanki September 8, 2014 at 4:24 pm

Sneha,

Your tax calculation is fine. If bills are not there then there should be a source to show from where it originated for you. In general you don’t need gift deed for movable items but yes if it is prepared will do good for you.

Ff gift deed is registered it should not. But you will be registering now so it may pose an issue. I am not aware of tax implications in detail. In my view you should meet a tax expert and seek his/her guidance.

Reply

Sneha September 9, 2014 at 11:23 am

Thanks for taking the time to write back.

Reply

shaival September 11, 2014 at 3:17 pm

What if i am gifted 1Lac for my wife should i be paying the tax for it.

Reply

Jitendra P.S.Solanki September 15, 2014 at 11:37 am

Shaival,

No. Spouse is covered under specified relatives and so your tax liability won’t arise.

Reply

vijay kumar September 11, 2014 at 7:11 pm

sir what is the legal probabilities to have a property with proprietor’s permission(mother).

Reply

hemant patel September 12, 2014 at 3:31 pm

Sir,
Is there any tax or penalty if gift of Rs.100000.00 given to huf by karta without any stamp paper agreement?
Thanks.

Reply

Jitendra P.S.Solanki September 15, 2014 at 11:50 am

Hemant,

Although you don’t require a gift deed in case of movable properties, but its wiser to have one so that you have a proof to show to income tax authorities if asked for.

Reply

Ravinder Sharma September 14, 2014 at 11:22 am

Sir,

My Father Wants to gift me 3-4 lakh rupees threw chque or RTGS . could you please suggest me the process so that is will be treated as gift and no tax will be applicable. My father is a govt. employee.

Reply

Jitendra P.S.Solanki September 15, 2014 at 11:56 am

Ravinder,

An ideal option is to have a gift deed made by your father which will be a sufficient proof of the gifted money.Since the transaction is through cheque or RTGS the deed will act as a good supplement to it.

Reply

Dr Raja Rao September 26, 2014 at 8:30 pm

I sold a vacant site recently. I have put the money in capital gain account.
Out of that money part of it I have gifted to my son in UK
Will I get capital gain tax benefit for the amount I have sent to my son

Reply

Jitendra P.S.Solanki September 30, 2014 at 10:50 am

Dr Raja Rao,

Since you are the holder of the said property, you are liable to pay capital gains tax. To get exemption, there are certain investments specified by IT and you need to invest within these. If you have gifted money to your son and its from the capital gain then you wont get any exemption on this money as gifting is not applicable for Capital Gains Tax Exemption.Do remember that if you have sold a land it comes under sec 54F and here you need to invest the entire sale proceeds to claim the exemption.

Reply

Dr Raja Rao September 30, 2014 at 11:16 am

Thank you Mr solanki for your prompt reply. I Have invested part of the money on a residential land. Is vacant land exempt from tax?repair
Work & paint work on the present house exempt from capital gain tax?
Please clarify
Regards
Dr Raja Rao

Reply

Jitendra P.S.Solanki September 30, 2014 at 1:03 pm

Dr Raja Rao,

Investment in a vacant land is not eligible for Capital Gains Tax Exemption. If you construct a house on it within three years then you can claim for exemption.

Reply

Dr Raja Rao September 30, 2014 at 8:31 pm

Tank you mr Solanki for your advice.i am grateful to you.
Regards
Dr Raja Rao

Reply

Dr Raja Rao September 26, 2014 at 8:37 pm

Capital gain tax exemption for money sent as gift to children abroad ?

Reply

alok September 26, 2014 at 9:05 pm

Hi,
my friend who live in england(UK). he is not my relative.he is a british citizen by birth (english man). can he give me cash gift to me(in my personal A/C) indivisualy or through his ngo and what about taxes on that.

Reply

Jitendra P.S.Solanki September 30, 2014 at 10:53 am

Alok,

A friend is not covered under the specified relative definition and so the money you will receive will be treated as your income on which you will be liable for income tax.

Reply

SIVA October 12, 2014 at 12:21 pm

My wife has rental income from an immovable property (2 storied – commercial ) to the tune of 12 lakhs per year. I have no rental income and my tax liability from regular income is much less. Can my wife gift one of the floors to me and in such case can this rental income from one floor be added to my regular income ( and accordingly reduced from my wife’s income)?
Kindly clarify

Reply

rahul jain October 13, 2014 at 11:10 am

???? ????? ?? ???? ?? ??? ????? ???????? ???? ??? ???? ?? ????? ???? pls reply fast

Reply

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