NRI Gift Tax Guide: Understanding Tax Implications in India (2024)

Income from different sources may or may not be taxable under India's applicable income tax laws. This can include salaried income, business income, income from the sale of a property, rental income, etc. Additionally, the taxation will also be determined based on your residential status.

However, did you know that gifts presented to resident Indians by a Non-Resident Indian (NRI) can also be taxed? And does the gift tax in India apply to residents when they present a gift to an NRI?

Through this blog, let us learn more about gifts' taxability and the gift tax for a foreign recipient.

What is an NRI Gift Deed?

In April 1958, the Government of India introduced the Gift Tax, which is governed by the Gift Act of 1958 (GTA). The purpose of this tax is to levy taxes on the giving and receiving of gifts in certain specified circ*mstances.

An NRI gift deed is a legal document required under Section 17 of the Registration Act of 1908. It is formulated when an NRI donor wants to give a gift to someone.

The gift deed is a formal agreement between the donor and the receiver and must be printed on stamp paper. Both parties must sign all the pages of the gift deed.

Taxation of Gifts by Resident Indians to NRIs

Regarding non-residents, only the income that is received or earned in India, or considered to have been received or earned in India, is subject to tax. This means that the source of the gift becomes crucial for tax purposes rather than the recipient's location abroad.

Moreover, the tax treatment of gifts to NRIs by resident Indians varies depending on whether the recipient is a relative or a non-relative.

The below table highlights the taxability status based on the gift limit in income tax:

Taxation of Gifts from NRIs to Resident Indians

Gifts received from NRI relatives by resident Indians are not subject to taxation in India, and this exemption applies to both the giver and the receiver.

• Gifts from NRIs (non-relatives) to resident Indians, up to ₹50,000/-, are also exempt from tax for both the giver and the receiver. However, if the value of gifts from NRIs (non-relatives) to resident Indians exceeds ₹50,000/-, the receiver is liable to pay NRI gift tax on the gift amount, which will be taxed based on their income tax slab.

• Gifts to resident Indians from NRIs, regardless of the relationship, on the occasion of marriage or through a will, are exempt from tax in India for both the giver and the receiver.

• Always maintain a record of gifts through gift deeds when sending or receiving them. Signing a gift deed and securing it can help prevent potential issues in the future.

NRI Gift Tax Rules in India

These are some essential rules and regulations regarding NRI gift tax in India:

• You can give an immovable property as a gift to an NRI if the sale proceeds sent abroad do not exceed USD 1 Million per year.

• NRIs can receive gifts in the form of shares and securities from relatives, provided it does not exceed 5% of the company's paid-up capital, complies with sectoral limits, and the NRI is eligible to hold such securities.

• Gifts received from specific funds, trusts, or scholarships from educational institutions are not taxable.

• Gifts in the form of immovable properties located outside India are exempt from tax.

• The value of the gift cannot be deducted while calculating income tax.

• Any income generated from the gift in India is taxable, regardless of whether the receiver and giver are Resident Indians or NRIs.

• Ensure you have the necessary documentation when receiving a gift.

• Cash gifts exceeding ₹2,00,000/- can be subject to a penalty, so receiving such gifts through cheques or bank account transfers is advisable.

• As per the Union Budget 2023-24, any monetary gift above ₹50,000 received by a non-ordinarily resident from a resident Indian would be deemed to arise in India and taxable from April 1, 2024.

• Gifts from a Resident Indian to an NRI can only be sent to their NRO Account.

While a number of items can be gifted to NRIs by residents or vice-versa, NRI insurance plans are financial products that can help you provide financial security to your family. The tax treatment of life insurance policies for NRIs is similar to that of resident Indians, provided the NRI has a PAN card.

However, if the tax proceeds from your NRI insurance policy exceed a certain limit, this amount will be taxable. But it is important to note that a life insurance policy can help you secure your family in India and offer them a death benefit in the event of your untimely demise. With a Tata AIA insurance policy, you can choose from different NRI life insurance plans that can cater to your different insurance needs.

Conclusion

With the above information, it is possible to understand the tax implications of gifts given to or from Non-Resident Indians. As per India's current and applicable income tax laws, different types of gifts can be completely tax-exempt or taxed beyond a certain limit.

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