Gift Tax On Property And How Does It Affect NRI

Indians have the tradition of exchanging gifts on various occasions and sometimes just as an expression of affection. NRIs can give and receive gifts in cash or kind such as property to and from individuals who may or may not be related to them. It is important to note that with gifts there are tax implications, particularly if gifts are expensive. Income Tax Act defines gifts as “assets received without consideration like money or money’s worth”. It can be cash, movable and immovable property, jewelry, etc. amongst other things.

The applicability of Gift Tax is seen from two perspectives, one what is the relationship between the people who exchanged gifts and second what is the gift’s worth.

Gift Rules For NRIs:

Section 56(2) of the Income Tax Act has an exhaustive list of people who are considered as relatives and exchanging gifts in the form of property from them does not invite tax.

    1. Spouse of the individual
    2. Brother or sister of the individual
    3. Brother or sister of the spouse of the individual
    4. Brother or sister of either of the parents of the individual
    5. Any lineal ascendant or descendant of the individual
    6. Any lineal ascendant or descendant of the spouse of the individual
    7. Spouse of the person referred in point 2-6 above

Other than relatives, gifts received by NRIs for following purpose/ occasion are exempted from tax

On marriage or during the death of someone.

    1. Anything received by way of inheritance or will.
    2. Gifts received from local authorities, any fund, foundation, university, educational institution, hospital, medical institution, any trust or institution.
    3. Any kind of remittance from immovable property whose sale proceeds does not exceed 10,00,000/year.
    4. Shares and securities are also eligible as a gift as long as they do not exceed 5% of paid-up capital of the company and NRIs are eligible to hold securities
    5. Gift of any kind of immovable property outside India also does not invite Gift Tax

Kinds Of Properties Which Are Taxable

    1. Any kind of property which are gifted to non-relatives are taxable.
    2. Income received from a gifted property in India is taxable in India whether the giver/receiver are NRIs.
    3. Immovable property whose stamp value exceeds INR 50000 is taxable. Stamp duty is the amount valued or assessed by central and/or state governments.

Amendments Made In 2019

As per the new amendment, it has become mandatory for an NRI to describe gifts received if they originate in India and then pay a tax on it. As per the new rules, emphasis on the origin of the gift is also considered. Now, an NRI would need to file his income-tax returns if the gift of above INR 50000 is received from a person other than a specified relative. They would also have to file relevant form certifying deduction of TDS. There is an exception to this rule if NRI is the resident of the country with which India has a Double Taxation Treaty. All such transfers after July 5, 2019, would attract tax.

With new amendments, scrutiny of gift tax has increased. So, it is advised to check with our property and taxation lawyers, in order to avoid compliance issues.