Everything You Need to Know About NRI Gift Tax in India

What is an NRI Gift Deed?

In 1958, the gift tax was introduced by the Government of India. This tax is introduced to levy taxes on the giving and receiving of gifts. An NRI gift deed is a legal document required under Section 17 of the Registration Act of 1908. A gift deed is created when an NRI donor gives a gift to someone. A gift deed is a formal agreement between the giver and the receiver, and it must be printed on stamp paper. The gift deed must be duly signed by both the parties.

Taxation on Gifts to NRI by Resident Indian

For non-residents, only income received or earned in India, or deemed to be so, is taxable. This makes the source of the gift more important for tax purposes than the recipient’s location abroad.

Additionally, the tax treatment of gifts from resident Indians to NRIs depends on whether the recipient is a relative or a non-relative.

Taxation on Gifts to Resident Indians by NRI

Here’s how a gift is treated for tax if a resident Indian receives it from an NRI:

• If the gift amount exceeds ₹50,000, the entire amount becomes taxable for the recipient under the income category Income from Other Sources. However, gifts from NRIs (non-relatives) to residents are exempt from tax upto Rs.50,000.
• Gifts given by NRIs to resident Indians on the occasion of marriage or through a will are exempt from tax in India for both the receiver and the giver.
• There should be a proper record of the gifts received through gift deeds while sending or receiving the gifts.

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Taxation of Gifts to NRIs

Here’s how the gifts given by residents to NRIs are taxed -

• The destination of the gift is not as important as its origin. For non-residents, only income accrued or received or considered to have been accrued or received in India is taxable in India.
• How a gift should be treated for tax depends on whether it was received by a relative or a non-relative.
• If a gift received by an NRI is valued at more than ₹50,000 by friends or associates, then the value of the gift will be added to the NRI's taxable income and taxed as per the NRI's income tax slab under the head ‘Income from Other Sources.’
• When gifting immovable property, the amount remitted from the sale cannot surpass $1 million annually. Securities gifted must not exceed 5% of the company's paid-up capital. Additionally, cash gifts are capped at Rs 2 lakh.
• Moreover, there exists a cap of $250,000 per financial year for gifts to NRIs, as per the Liberalised Remittance Scheme.

What are the Relatives for the purpose of Income Tax

Below is a list of persons who are defined as relatives as per the Income Tax Act -

• Spouse of the individual.
• Individual’s Brother or sister
• Brother or sister of the individual’s spouse.
• Brother or sister of either of the individual’s parents.
• Individual’s Lineal ascendant or descendant.
• Lineal ascendant or descendant of the individual’s spouse.
• Spouse of the persons referred to in (2) to (6).

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