Everything You Need to Know About NRI/OCI Gift Taxation in India

If you are an NRI or an OCI, you can bring a gift with you when returning to India, which can make you feel excited. However, the gifts you sent to the Indian residents are taxable in India.

If you get income from different sources in India, such as salary income, business income, rental income, or the sale of any property, it will also be taxable on the basis of your residential status. 

Through this blog, we will see what the tax NRI gift tax in India is, which is sent by the NRI/OCI to the Indian resident in accordance with all the income tax laws. 

What is an NRI Gift Deed?

The NRI gift tax was introduced by the Indian government in 1958, but was later abolished. It is governed by the Income Tax Act, 1961, which helps reduce the taxation of gifts sent and received. The gift deed is a legal and verified document, which is essential under Section 17 of the Registration Act of 1908. It is created when an NRI or an OCI sends a gift to someone residing in India. 

It is a formal agreement between the person who sent a gift or the person who received a gift, and should be printed on stamp paper. The gift deed is a document that both the receiver and the sender must sign. Registration of a gift deed is optional for movable property.

Gift Taxation by the Indian Residents to an NRI and OCIs

Any income received or earned by the non-residents in India or deemed to be received in Indian is taxable. It means that the source of the gift is more important for tax purposes in India than the location of the recipients. 

The NRI gift tax in Indian is also dependent on whether the recipient is a relative or a non-relative of the sender. 

Here is the table given below, which will help you to see the taxability status, which is based on the gift limit according to the income tax: 

Taxation of Gifts by an NRI or OCI to an Indian Resident 

If you receive any gifts from an NRI or an OCI, they will not be subject to Indian taxation, and you can apply for tax exemption for the gifts under the other sender and the receiver.

Here are some of the points that will help you to know the tax treatment of the gifts sent to Indian residents by an NRI or an OCI: 

• If the amount of the gift exceeds 50,000 INR, the entire amount becomes taxable under the income tax, falling under the category of income from other sources. However, you can get an exemption for up to INR 50,000 from the gifts that you will get from a Non-resident Indian (NRI) or an OCI cardholder.
• Any gifts sent by an NRI or an OCI for the marriage or any family event will be exempt from Indian taxation for both the recipient and the sender. 
•  They need to keep a record of the gifts they receive or send to Indian residents through gift deeds. 

Taxation of Gifts to the NRIs 

Given below are some of the taxes on gifts that Indian residents send to NRIs:

•  The origin of the gift is most important for gift taxation, not its destination. For the NRI, income earned or generated in India, or deemed to be received in India, is taxable in India. 
• The taxation of the gifts depends on whether the gift is sent by a relative of the NRI or an on-relative in India. 
• If a gift received by a non-resident Indian (NRI), which holds the value of more than INR 50,000 and is sent by the friends or any associates of an NRI, it will be taxable in India and added to the NRI's taxable income according to the NRI's income tax slab rate under the income from other sources. 
• If the value of immovable property received as a gift exceeds 1 million annually, the fair market value is taxable as income from another source.
• Securities and shares as gifts should not exceed 5% of the company's paid-up capital, and cash gifts are capped at INR 2 lakhs under the FEMA/NDI rules. 
• Under the liberalised remittance scheme, you will get a cap of $2,50,000 for gifts to NRIs in a financial year. which must comply with LRS rules.

NRI Gift Tax Rules in India 

Here are some of the NRI gift tax rules in India that you need to follow while sending or receiving gifts. 

• If your sale is not more than 1 million USD in a financial year, you can sell an immovable property if it is received as a gift to the NRI without any consideration. 
• NRIs can also receive shares and securities as gifts from their relatives. However, the shares and securities do not exceed 3% of the company's paid-up capital and in accordance with the sectoral limits. 
• Any gifts received by any charitable trust or any financial funding organisation, through scholarships or educational institutions, are not taxable. 
• If any gift is received from outside India in the form of immovable property, it will be exempt from taxation in India. 
• If any income is generated from the gift, income will be taxable in India even if it is sent or received by an Indian resident or an NRI. 
• Make sure you have all the documents for the gifts when receiving a gift. 
• No cash gifts are allowed if the amount exceeds INR 2,00,000 under Section 269ST. Doing this can lead to serving penalties. You should receive gifts through cheques or your NRO Account or NRE account. 
• According to the Union Budget 2023-24, if an NRI receives a monetary gift of more than 50,000 INR from an Indian resident, it will be deemed to arise in India and will be taxable, effective April 1, 2024. 
• The gift tax depends on whether the gift is received by a relative or a non-relative. 

Tax Implications for Gifts Under FEMA, 1999

Here are some of the implications of sending and receiving gifts under the Foreign Exchange Management Act, 1999. 

• By transferring funds from an NRO/NRE account, NRIs and OCIs can send gifts to Indian residents. 
• The POA holder does not have a valid authority to sign the cheque for the gift transaction. The transaction for the gift should be signed only by the account's real owner. 
• According to FEMA rules and regulations, an NRI or an OCI can send cash gifts to an Indian resident under Section 9 of the FEMA regulation, which sets rules on the control of foreign currency remittances and holdings. Any foreign gifts received should comply with FEMA and bank rules. 

Implication of the Gift Tax by NRI Under the Income Tax Act, 1961

Here are some of the taxation implications of sending or receiving by an NRI under the Income Tax Act of 1961. 

• As there is no gift tax in India, gift taxation depends on the hands of the recipient, subject to certain conditions. 
• The amount of the gift received should not exceed INR 50,000 in a financial year, according to the Income Tax Act. 
• If the amount of the gift exceeds INR 50,000 in a financial year, the gift will be categorised as taxable under Income from other sources. 
• Under the Income Tax Act of 1961, sections 56 and 68 operate independently. 
• The gifts received by close relatives are exempt from tax under section 56(2) of the Income Tax Act, 1961. 
• The gifts under sections 56 and 68 of the Income Tax Act still need to be satisfied for the exemption. 
• According to Section 68 of the Income Tax Act, funds which are credited in the book of the assessee should be maintained for the previous year, and the explanation made by the assessee for the nature and the source. Therefore or any explanation not offered by him is not considered as the opinion of the assessing officer, so that the assessee should charge the total sum of the income tax for the income of the previous year.
• An assessor needs to describe the following details to the assessing officer for the gifts that he received from: 
• The identity of a person. 
• Persons creditworthiness
• Transparency and genuineness of the transaction. 
• All the documents that are written above are based on the condition of the case. 

What is the Relative Purpose of the Income Tax

Here is the list of the persons who are allowed as a relative according to the Income Tax Act: 

• An individual brother and sister. 
• Spouse of the individual. 
• Sister or brother of the individual spouse. 
• Sister or brother of the individual's parents. 
• Individual lineal ascendant or descendants. 
• Lineal ascendant or descendant of the individual's spouse. 
• Spouse of the person referred to in the 2nd and 6th lines above. 

Final Thoughts

Through this blog, you will get an idea of the tax implications of sending or receiving gifts from a non-resident of India (NRI) or an Overseas Citizenship of India (OCI) under Indian Income Tax rules and FEMA regulations. 

However, managing these tax implications when sending and receiving gifts to or from the NRI and OCI is a bit of a challenge on your own. Here is the Visament website, which will help you with all the taxation for NRIs and OCIs in compliance with all Indian laws and rules. 

For more information or any assistance regarding NRI or OCI services, you can contact the Visament support agents through our Visament website. We are active and ready 24/7 to help you solve all your issues, doubts, and confusions.