Everything You Need to Know About NRI Gift Tax in India

Taxation on Gifts to NRI by Resident Indian

Let’s discuss how a gift is treated for the purpose of taxation:

• 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.

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. Nevertheless, gifts received from relatives, as delineated in section 56(2) of the act, are exempt from this tax obligation.
• Simply fulfilling section 56 does not absolve one from tax liability. The recipient must also meet the requirements of section 68 of the act, which entails providing a satisfactory explanation to the Income Tax Assessing Officer regarding the nature and origin of any credited sum.
• Moreover, gifts received from non-residents as marriage gifts or through a will are exempt for both the giver and the receiver, regardless of their relationship.

The chart below represents the status of taxability:

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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).

FEMA Requirements if Gift Involved NRI

The directives outlined within the Foreign Exchange Management Act, 1999 regarding gifts involving NRIs are as follows:

• An NRI or Overseas Citizen of India (OCI) retains the authority to gift a resident through a remittance from their NRO or NRE account.
• The authority to gift a resident cannot be delegated to the power of attorney of these accounts; the transaction must be executed solely by the NRI/OCI account holder.
• NRIs/OCIs have the precedence to gift cash to residents; however, a resident cannot have more than $2000 or its equivalent at any given time.