- 30-Apr-2025
- Personal Injury Law
Gifting to Non-Resident Indian (NRI) relatives from India involves unique tax considerations, as the taxation rules depend on the relationship between the donor and the recipient, the country of residence of the NRI, and whether the gift is considered domestic or foreign. In India, gifts are taxed differently for NRIs compared to residents, and certain exemptions may apply based on the circumstances.
Under Indian tax laws, gifts made to relatives are generally exempt from gift tax. Relatives include parents, siblings, children, spouses, etc. Therefore, if an Indian resident gives a gift to an NRI relative, this gift is exempt from tax in India, provided the relationship qualifies.
The Indian tax authorities define a relative for the purpose of gifts as a person who is related to the donor by blood, marriage, or adoption. This means that gifts given to NRI relatives like parents or children are generally exempt from gift tax in India.
Example: An Indian resident gives Rs. 5,00,000 to his NRI son living in the U.S. The gift is exempt from gift tax in India because the recipient is a relative.
If an NRI relative receives a gift from abroad (say, from a foreign relative or friend), the gift may not be taxable in India if the amount is within the prescribed limits and the donor is not a resident of India. However, if the gift is substantial, the recipient may need to declare the gift to Indian tax authorities.
Example: An NRI living in the U.K. receives a gift of Rs. 10,00,000 from their uncle residing in the U.S. This gift may not be taxed in India if it comes from a non-resident source, but the recipient must report the amount to Indian tax authorities if required.
Gifts to NRI relatives are exempt from tax if they meet the definition of a relative under Indian law. As long as the gift is made by a close relative, such as a parent, spouse, sibling, or child, it will typically not attract any gift tax in India. However, gifts from non-relatives could be subject to tax if they exceed a certain value.
Example: An NRI in the U.S. receives a gift of Rs. 8,00,000 from a distant relative who is not considered a close relative under Indian law. This gift could be subject to tax if it exceeds the threshold of Rs. 50,000.
If the gift exceeds Rs. 50,000 and the donor is not a close relative, the recipient may be required to pay tax on the gift. The amount will be considered income and taxed under Income Tax Act as Income from Other Sources. This applies to both residents and NRIs in India.
Example: An NRI in the U.K. receives Rs. 1,00,000 as a gift from a family friend. Since the gift is from a non-relative and exceeds Rs. 50,000, it will be considered income and taxed accordingly in India.
If the NRI receives foreign gifts (i.e., gifts from non-Indian sources), India does not impose tax on gifts received from abroad as long as they are not from a business relationship. This rule generally applies to personal gifts received from relatives or friends.
Example: An NRI in Canada receives Rs. 10,00,000 as a gift from a relative in Germany. The gift is not taxable in India if it is a personal gift and not related to business or commercial activities.
The NRI's country of residence may also impose tax on foreign gifts, depending on local tax laws. Some countries may tax gifts received from abroad if they exceed certain thresholds. The NRI should check the local tax laws in their country of residence to determine if any taxes are due.
Example: A resident of the U.S. receiving a substantial gift may need to report the gift on their tax returns, as the U.S. has gift tax laws that require reporting of gifts over a certain amount. However, no Indian gift tax will apply.
When sending money to NRI relatives, if the remittance is a gift, it may be subject to tax reporting requirements in India. However, remittances for purposes other than gifts (such as maintenance or family support) are typically not subject to gift tax in India.
Example: A person in India remits Rs. 3,00,000 to their son in the U.K. for family maintenance. This remittance is not considered a gift and is not taxable in India.
Some countries have Double Taxation Avoidance Agreements (DTAA) with India that can impact how gifts are taxed, particularly if the NRI is a resident of a country with a tax treaty. These treaties may offer relief from double taxation or allow for tax credits on foreign gifts.
Example: An NRI living in Canada receives a large gift from a relative in India. Under the India-Canada DTAA, the NRI may be exempt from gift tax in India but should verify whether the Canadian tax authorities have any reporting requirements for foreign gifts.
Example: A person in India gives a gift of Rs. 15,00,000 to their NRI daughter residing in the U.S. Since the daughter is a close relative, the gift is exempt from Indian gift tax. However, if the daughter receives the gift in the U.S., she may need to report the gift to the U.S. tax authorities, depending on the amount, as the U.S. has gift tax reporting requirements for foreign gifts exceeding certain limits. In India, the gift remains non-taxable, and the NRI does not need to pay any Indian taxes.
Taxation on gifts to NRI relatives differs significantly from gifts made to residents in India, mainly due to the exemptions available for relatives and the distinction between domestic and foreign gifts. While gifts between close relatives are generally exempt from gift tax in India, the recipient must be aware of potential reporting requirements in both India and their country of residence. NRIs should consult with tax professionals in both jurisdictions to ensure compliance with local tax laws and avoid any unanticipated tax liabilities.
Answer By Law4u Team
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