Taxability of Gifts to NRIs from Resident Indians

‘’ Gifts in India from/to a relative or a specified person are not liable to tax (up to a specific limit)’’, the tax department apart from major reliefs in the gift sections added this is in the context of the Income-tax law last year, where it was also included to relieve NRIs and resident for tax free exchange of gifts.

Placed in Section 56 of the Income-tax Act 1961, gifts are given in any form cash, cheque, movable or immovable property to any relative residing anywhere in India or abroad will be held tax free in the hands of both the receiver and the giver. Earlier, the department notified the above exchange limit to Rs 50,000, above which the gift shall become taxable in the hands of the recipient.

Without putting to notice of tax entities, NRIs were allowed to receive any amount of gifts from their relatives or close acquaintances which were to be added to their abroad income taxable outside India, which was out of the preview of Indian Income-tax rules.

Thus, to wipe off tax evasions and misuse of the above, the provisions for unaccounted transactions, some effective changes have been made to the Income-tax law by Indian Finance Minister while announcing the Budget 2019 for the country.

Tax changes made for NRI gifts in Budget 2019.

Imposing a tax on the evading possibilities by entities in India and abroad, the FM decoded new tax rules for NRIs receiving gifts from India.

–    Gifts as above Rs 50,000 post to 5th July 2019 by NRIs shall now be held taxable in the hand of NRIs as per Indian tax rules.

–    The value of the gift would be added to the income of NRIs, in addition to other incomes received from India.

–    The total taxable income after including such gift shall become chargeable as per normal tax slab rates like as applicable on an Individual Resident Indian.

–    The gift would be reported under Income from other Sources by NRIs filling their IT Return.

–    Gifts of all kinds namely cash, shares, movable, immovable property, gift vouchers, etc shall be considered for taxation with the new rules.

–    The said amendment shall be placed from the assessment year 2019-2020.

–    NRIs w.e.f. 1st April 2019, shall have to file an income tax return in India as a beneficiary in case of receipt of gifts above Rs 50,000, even in case there is no other income from any other source of the NRI from India.

Why the change was required?

The provisions made in the tax law, precepts to decrease cross border liabilities and intent to build effective compliance reporting of NRIs for hidden transfers and ownerships. However, the amendments made also subjects to :

     Keep a regular check over Benami transactions made with unregulated transfers.

    Mandate NRIs to report such gifts in other global incomes under standard DTAA norms.

    The limit of exemption on Gifts as previously provided to NRIs shall continue only in respect of certain notified relatives and family acquaintances.

Apart from these, some major adjustments and additional benefits were announced in the Budget 2019 for NRIs, like Creation of Aadhaar for NRIs returning India, tax exemption for holding of Rupee dominated bonds, simplification of the documentation process for handling of portfolio investments, etc

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