Rules for Tax on Gifting in India for NRI: Everything You Need to Know

Gifting is one of the most popular ways NRIs support their family members, show appreciation, and celebrate special occasions. However, when it comes to sharing gifts across borders, it is subject to several tax and financial regulations.

The tax laws created on gifting and inheritance are specifically made to prevent tax evasion and money laundering. According to the FEMA (Foreign Exchange Management Act), NRIs can send gifts to residents. However, they must follow and comply with the tax guidelines. In short, understanding the rules for tax on gifting in India for NRIs is vital.

To help you out, we have included all the information about it in this blog. For instance, can NRIs gift money to parents in India, how much money they can send, and more. So read on and get all your answers.

Can an NRI Send Money to Parents in India without Tax?

Yes, NRIs can send money to their parents in India without tax. However, to ensure transparency, they need to follow certain guidelines. The gifts sent by NRIs include cash, shares, property, or other assets. To help relatives with their financial goals or expenses, these gifts are often exchanged. Further, in India, NRIs are legally permitted to send money to their parents.

So, yes, from the above information, it is clear that NRIs can send money to parents in India without tax. Moving ahead, let's know about NRIs and when the gift tax is applicable.

When is a Gift from an NRI Taxable in India?

The taxation on gifts received from an NRI depends on the relationship the two people share and on the direction of the gift. Here is how, as per the different scenarios, the taxation works:

• Scenario 1: NRI → Resident
  • Tax Liability: Based on the gift value and the relationship the Indian resident shares with the NRI, pay the taxes.
  • No FEMA Restrictions: Subject to Income Tax rules, NRIs can gift unlimited amounts to their relatives in India.
  • Example: Sneha is an NRI living in the US. As a gift, she sends INR 30,00,000 to her friend living in India. Here, Sneha is not liable to pay tax. However, her friend is not her relative, and the amount is more than INR 50,000.
• Scenario 2: Resident Indian→ NRI Gift
  • Tax Liability: If certain conditions are met by the NRIs, then they are liable to pay tax in India.
  • FEMA Limits: Under the Liberalised Remittance Scheme (LRS), in a financial year, Indian residents can send up to USD 250,000.
  • Example: Avinash, an Indian resident, gifts INR 50,00,000 to his NRI brother in the USA. Since they are relatives, the gift to his brother is tax-free. However, Avinash needs to ensure that the amount transferred matches the LRS limits. 
• Scenario 3: NRI→ NRI Gift
  • Tax Liability: Generally, the gift amount is not taxable in India, unless the recipient has Indian income sources.
  • FEMA Regulations: Under Indian law, there are no such restrictions on it. However, it may be taxable in the residence country of the recipient.
  • Gift Limitation: Gift up to INR 50,000 annually from non-relatives is tax-free. Further, the amount above INR 50,000 is not only the excess, but the complete amount is taxable.
  • Example: If you receive INR 30,000 from your friend A and, in the same financial year, receive INR 30,000 from your friend B. Here, the total amount you receive is INR 60,000, which is INR 10,000 more than the INR 50,000. Hence, you will pay tax on the entire amount, i.e., INR 60,000.

So, this was all about when a gift from an NRI is taxable in India. Moving further, let's look at what gifts are exempt from tax.

Gifts Exempt from Tax Received by NRI

Understanding tax exemptions can help you save a significant amount of tax liability. Here are the key categories :

Gifts from Relatives

When gifts are received from specified relatives, no limit on gift value is imposed. Under the Income Tax Act, the following people qualify as relatives:

Further, under the income tax laws, cousins, uncles, aunts, and their children are not considered relatives. Considering this, gifts received above INR 50,000 from them are taxable.

Wedding Gifts

All gifts received on the occasion of marriage or engagement-related ceremonies, regardless of the relationship with the giver or the amount.

• No limit on value
• Applies to both property and cash gifts
• Should be associated with the marriage occasion
• Involves engagement and wedding-related ceremonies

For instance, on your wedding, if you receive INR 5,00,000 and gold worth INR 7,00,000 from several relatives and friends, they are all tax-free.

Inheritance and Will

Money or property received through will or inheritance is not taxable. It includes the following things:

• After the death of someone, their assets are received
• Inheritance through succession laws
• Through a registered will, transferred property

Institutional Gifts

Gifts received from registered institutions are free from tax obligations. In this, the covered institutions are as follows:

• Medical institutions
• Educational institutions (grants, scholarships)
• Under section 12A/ 12AA registered charitable trusts
• Local officials (municipal corporations)

These were the following gifts that were exempt from tax. Moving ahead, let's know what documents are required for gifting in India for NRIs.

Documentation Required by NRIs for Gifting in India

Here is the list of the following documents required by NRIs for Gifting in India

• For All Gifts
  • For high-value gifts, on stamp paper, a gift deed
  • Records of bank transfer
  • Relationship proof (if claiming relative tax exemption)
  • Valuation certificates in case of property and jewelry
• For NRI-Specific Compliance
  • RBI reporting for amounts that are more than the prescribed limits
  • FEMA declaration forms
  • Tax residency certificates when applying for DTAA benefits
• ITR Filing Requirements
  • When to Report
    • Any taxable gift should be reported in your ITR
    • Mentioned under the "Income from Other Sources" head
    • Provide supporting documents
  • Form Requirements
    • Depending on the other sources of income, ITR-2 or ITR-3 Form
    • Schedule OS for stating "Income from other sources"
    • All gift-related documents should have digital copies
  • RBI Reporting
    • LRS reporting: Indian residents gifting to NRIs should report under LRS if the gift amount is more than the prescribed limits.
    • High-value transactions: Gifts above INR 10,00,000 may need additional documentation and RBI reporting. 

These are the documents that NRIs generally require while gifting in India.

Final Thoughts

Lastly, to support their loved ones in India, NRIs considered gifting assets or money a meaningful way. While this process of sending gifts is straightforward. However, NRIs should consider the tax rules and implications associated with gifting in India. Here, the complete blog was about that.

Further, being an NRI, seeking different ways to increase your tax savings? Connect with Savetaxs and let our experts help you solve all your tax-related queries.