NRI Gift Tax in India: Understanding Rules, Exemptions, and Tax Liability for NRIs

Is it possible for an NRI to give a gift of immovable property in India? What are the FEMA regulations regarding the gifting of residential or commercial property to relatives and non-relatives? NRI gift tax determines the taxability and compliance of such transactions under Indian law. The Income Tax Act provide clear rules on what can be gifted, who can receive the gift, and when it becomes taxable. Understanding these rules helps NRIs avoid legal complications and tax liabilities, and ensures a smooth transfer of assets. In this blog, you’ll learn more about NRI gift tax, rules, regulations and much more. 

Who Are NRIs, and Why Does Gift Tax Matter?

Non-Resident Indians (NRIs) are individuals who hold Indian citizenship but predominantly reside outside the country. The status of being an NRI is determined based on the amount of time an individual spends in India during a financial year. Typically, if an individual resides in India for fewer than 182 days in a financial year, they are considered an NRI.

Importance of Gift Tax?

Gift tax is about taxes on the presents you give or receive. For NRIs, this is crucial because the tax rules change based on who's giving the gift and who's getting it. Whether it's a big gift for your family or a small one for a friend, knowing the rules helps make gifting smooth without any surprise taxes.

Let's delve into why gift tax matters using the key factors:

1. Who Gives the Gift

• NRIs Giving to Residents
  • Relatives: Gifts to close family members - spouses, siblings, parents, and children - enjoy a tax exemption, regardless of the gift's value. So, go ahead and shower your loved ones with generous gifts without worrying about taxes.
  • Non-Relatives: If you're gifting a non-relative resident, be mindful of the ₹50,000 threshold. Gifts up to ₹50,000 are tax-free for the recipient. However, any amount exceeding this limit is considered "Income from Other Sources" and becomes taxable for the receiver.

• Residents Giving to NRIs
  • Relatives: Similar to NRIs gifting to relatives, gifts from resident Indians to NRI relatives are entirely exempt from tax for both parties. This ensures that spreading joy to family members abroad doesn't come with any tax concerns.
  • Non-Relatives: The ₹50,000 rule applies here too. Gifts exceeding this amount might be taxable. Additionally, NRIs can leverage the Liberalised Remittance Scheme, allowing them to receive up to $250,000 per year tax-free.

2. Nature of the Gift

Gifts can take various forms, including cash, movable property (like jewelry), or immovable property (land). These gifts are subject to tax if given without considering their market value. Special occasions like marriages or gifts through wills are exempt from tax, irrespective of the relationship between the giver and the receiver. Here's a simple breakdown:

• Cash Gifts: This is when you give money as a gift.
• Movable Property (like Jewellery): Some gifts are things you can move, like jewellery or art.
• Immovable Property (like Land): For bigger gifts, like land or a house, the nature of the gift is immovable property.
• Gifts with Consideration: Sometimes, a gift might involve a little something in return, like a small amount of money. We call these gifts with consideration.
• Gifts in Special Occasions: Gifts given during special times, such as weddings, or gifts specified in a will, often have special rules and may be exempt from certain taxes.

• Remember
  • Maintaining records of gifts through "gift deeds" is crucial for future reference and potential tax issues.
  • Consulting a tax professional for specific situations is highly recommended. Their expertise ensures you navigate the gift tax landscape with confidence, especially when dealing with unique circumstances or larger amounts.

Taxability of Gifts for NRIs

The rules governing gift tax for NRIs in India are outlined in the Income Tax Act, 1961. The taxability of the gift depends on its value, the relationship between the donor and the recipient, and whether the gift is in the form of money, property, or other assets.

Here are key points for the taxability of gifts for NRIs:

• If an NRI receives money exceeding ₹50,000 in a year from a non-relative, it becomes taxable in India.
• If received without consideration (free gift) and the stamp duty value exceeds ₹50,000, it is taxable.
• If purchased at a lower price than the stamp duty value by more than ₹50,000, the difference is taxable.
• Gifts above ₹50,000 in value from non-relatives are taxable.
• Gifts from specified relatives (parents, siblings, spouse, children, etc.) are fully exempt, regardless of value.
• Gifts received on marriage, inheritance, or under a will are not taxable.
• If the NRI qualifies as a "Resident" in India for tax purposes in a given year, gift taxation rules may apply differently.

FEMA Regulations for NRI Gifts

When it comes to gifting money or assets, NRIs must comply with Foreign Exchange Management Act (FEMA) guidelines. A gift by an NRI to a resident Indian is permitted under FEMA, but there are specific rules governing the mode of transfer, limits, and types of assets that can be gifted. 

• Gifts can be transferred only through normal banking channels, such as wire transfers, NRE/NRO accounts, or FCNR accounts. Cash gifts are not allowed.
• An NRI can gift money, immovable property (other than agricultural land, plantation, or farmhouse), shares, or securities to a resident Indian.
• If the gift is in the form of funds from an NRE or FCNR account, it can be repatriated freely, but funds from an NRO account are repatriable only within prescribed limits.
• The value of assets like property or shares gifted must be properly documented and transferred according to FEMA and RBI guidelines.
• FEMA allows NRIs to gift freely to close relatives, which usually includes parents, siblings, spouse, and children.
• An NRI can gift immovable property to a resident Indian, but they cannot gift agricultural land, plantation property, or farmhouses.

How Can NoBroker Help with NRI Gift Transactions?

Handling NRI gift tax and compliance with FEMA rules can be confusing, especially when large sums of money or property are involved. NoBroker provides end-to-end assistance to NRIs, ensuring their gift transactions are legally valid and tax-compliant. Our experts guide you in documentation, drafting gift deeds, and advisory services based on FEMA guidelines and tax implications. Also, NoBroker ensures transparency at every step, saving NRIs and their families time and effort. Download the NoBroker app today!