TAXATION OF GIFTS TO NRIs
“A Gift” is a voluntary transfer of Cash, Movable /Immovable property by one person to another person without consideration in lieu of love and affection. A gift may be given by a person to his/her relatives or to friends or to any other person without consideration. Some gifts are exempted from tax and some gifts are taxable. Gifts given by a person to his relatives are exempted and gifts received by an individual from friends and other persons are exempted if it exceeds Rs. 50000/- in a Financial Year.
The Gifts are taxed under The Gifts Tax Act, 1958, and from 1st October 1998, the Gifts Tax has been abolished. All types of gifts had been exempted from taxation and in 2004 special provisions has been added to the Income Tax Act, 1961 in which all types of gifts(except gifts to closed blood relatives ) in excess of Rs. 50000/- has become taxable and even HUFs has brought under taxation. Donor means a person who is making or giving the gift. Donee means a person who acquires the asset either movable or immovable from a donor.
When gifts are made to a Trust, then the Donee are the Trustees and the beneficial owner, of that asset. The beneficial owner is those, who enjoy the asset which is under the gift.
SOURCES OF GIFTS
Under the provisions of the law, a person can receive the gift under the following circumstances:
- Gifts from close or blood relatives.
- Gifts received at the time of Marriage.
- Gifts that are received by legacy or inheritance.
- Gifts received in contemplation of Death of the Donor.
GIFTS EXEMPT FROM TAX:
Certain gifts are not taxable or exempt from this tax. They are:
- Gifts are given by blood or close relatives, irrespective of the value.
- property located outside India.
RESTRICTIONS ON MOVING GIFTS ABROAD
- Any individual cannot take his or her movable asset out of India unless the donor:
- Is an Indian Citizen, who was originally a resident of India, or did the individual who received the gift when he or she was not a resident of India in that financial year.
- Gifts the balance of the Non-Resident Bank Account. Foreign Currency gifts of convertible foreign exchange, sent from abroad by a non-resident Indian to a resident Indian.
- Foreign Exchange asset gifts by a non-resident to his or her relatives. Special Bearer Bonds 1991. Savings Certificates issued by the central government.
- Capital Investment Bonds up to Rs 10 lacs or Rs 1 million in a year.
- Relief Bonds gifts by an original subscriber.
- Gifts of certain bonds from NRIs to his or her relatives, which are subscribed in foreign exchange and are specified by the central government. Gifts to Government or Local Authority.
- Gifts to any charitable organizations.
- Gifts to notified temples, mosques, churches or other places of worship.
- Reasonable amount of gifts to children for educational purposes.
- Gifts by employers to their employees in the form of a bonus, gratuity or pensions.
- Gifts under Will. Gifts in contemplation of death.
GIFTS PERTAINING TO NON-RESIDENT INDIANS
When a non-resident Indian parent, child or relative transfer cash or property as a gift, it is not taxable in the hands of the resident recipient.
- Gifts of immovable property abroad are not taxable.
- Gifts to parents from NRE accounts of children are not taxable.
AN NRI CAN HAVE AN INTEREST IN THE FOLLOWING ASSETS IN INDIA, WHICH HE RECEIVES BY GIFT OR BY INHERITANCE
- Money or Liquid funds;
- Immovable properties;
- Jewellery, paintings, art piece,s or other valuable goods
- Shares in companies registered in India;
- Interest in Limited Liability Partnerships (LLPs).
Any such receipt through gift of inheritance is regulated by FEMA and also by the Income Tax Act, of 1961.
IMPLICATIONS OF FEMA ON SUCH ASSETS ARE AS UNDER
MONEY/ LIQUID FUNDS
An NRI is allowed to receipt money as gift from a resident Indian under the Liberalized Remittance Scheme (“LRS”), within the limit of USD 250,000 in a financial year as prescribed therein. The donor and the recipient need not be close relatives. It is allowed under the FEMA provisions, however, the gift will be taxable in the hands of the NRI recipient (if exceeding INR 50,000) under the Income Tax Act.
A resident individual can also gift money to a close relative NRI vide a cheque or net banking to his NRO account in India, subject to overall limit of USD 250,000 in a financial year. The NRI can take out the money already lying in his NRO account subject to a limitation of USD 1 million per financial year. The definition of Relative in FEMA means the definition as per the Companies Act, 2013 which include- spouse, father, mother, son, son’s wife, daughter, daughter’s husband, brother and sister of the individual.
Gift of immovable property located in India, is permitted to NRI. Exceptions to the immovable properties to be received on gift by NRI are
- agricultural land;
- plantation property.
The gift of immovable property is allowed even to the NRI who is not a relative, however, in case of Income Tax Act, if the gift is without consideration and to a non-relative, the receipt of the gift is taxable in the hands of the recipient where the stamp duty value would be the basis for computing deemed income.
The NRI can take out the sale proceeds of such properties outside India, from is NRO account within the allowed limit of USD 1,000,000 per financial year. This is also applicable where the property has been received by the NRI/ PIO by way of inheritance/ legacy.
SHARES AND SECURITIES IN AN INDIAN COMPANY
A resident individual can gift the securities held in an Indian company, such as equity shares, debentures, preference shares, share warrants etc) to an NRI subject to prior approval from the Reserve Bank of India.
Also, the following conditions need to be fulfilled;
- The NRI recipient is eligible to hold such a security under relevant Regulations;
- The gift does not exceed 5% of the paid-up capital of the Indian company;
- The applicable sectoral cap in the Indian company is not breached;
- The donor and the recipient are ‘relatives’ within the meaning in section 2(77) of the Companies Act, 2013; and
The value of the security to be transferred by the donor together with any security transferred to any person residing outside India as gift during the financial year does not exceed the rupee equivalent of Rs. 50,000.
Gifts of securities are regulated by the FEMA provisions which put a bar to a certain quantum also prior approval from the Reserve Bank of India is required and the parties to the gift transaction are required to be “relatives”. The gift of securities between relatives is exempt from taxes, however, if, between the non-relatives, it is taxable where the fair market value of such shares is the basis for computing the deemed tax liability in the hands of the NRI recipient.
The NRI can receive the Securities on inheritance and no such restrictions are there.