Receiving gifts from Non-Resident Indians (NRIs) can have tax implications for Indian taxpayers. The laws have provisions to govern the taxation of gifts received from NRIs, and it is essential for us to understand these regulations.
An NRI is an individual who qualifies as a resident of India under the Income Tax Act but meets certain conditions. These conditions include being outside India for employment or business purposes or staying in India for less than 182 days during the relevant financial year.
What is taxed?
In India, the gift tax was abolished in 1998. However, gifts received from NRIs are subject to taxation under income tax regulations if the total value of gifts received during the financial year exceeds Rs 50,000.
The tax treatment of gifts depends on the nature and value. If an NRI gives cash as a gift to an Indian resident, the entire amount is taxable as ‘Income from Other Sources’ under Section 56(2)(x) of the Income Tax Act. The recipient should include the gifted amount in their total income and pay tax on it based on their applicable slab rates.
Non-cash gifts, such as movable or immovable property, jewellery, artwork, etc., are taxed differently. The recipient needs to determine the fair market value (FMV) of the gift on the date of receipt. If the FMV of all gifts received during the financial year exceeds Rs 50,000, the excess amount is taxable as ‘Income from Other Sources’.
What is not taxed?
Certain gifts are exempt from tax, regardless of their value. Exclusions include gifts received on occasions like marriage, through inheritance, or under a will. Gifts received from specified relatives such as parents, siblings and spouse are also not taxable, regardless of their value.
Indian taxpayers who receive gifts from NRIs exceeding Rs 50,000 are required to disclose the details of such gifts in their I-T returns. They should provide information regarding the nature, value, and donor’s details while filing their tax returns.
To ensure compliance with tax regulations, it is advisable for taxpayers to disclose all gifts received from NRIs in their income tax returns. Seeking professional advice can be beneficial in understanding the specific tax implications based on individual circumstances.