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Tax implications on NRIs receiving gifts in India
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Understand what qualifies as a gift
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Know the limits, rules and tax implications for gifts received (both in India and abroad)
The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of March 31, 2024.
As Non-Resident Indians (NRIs), you may receive gifts from relatives or friends who are Indian residents or NRIs. This article discusses how gifts received by NRIs are taxed in India.
Understanding gifts
The permissibility for receipt of gift is regulated by the Foreign Exchange Management Act, 1999 (FEMA), and its taxability under the Income Tax Act, 1961 (IT Act).
As per the IT Act, a ‘gift’ is any asset or money that you, as an NRI, receive from another person without any consideration. Here, ‘without any consideration’ means that you, as a receiver of the gift, do not have any obligation or liability to pay back in any manner. These assets could take the form of:
- Liquid funds
- Immovable properties
- Shares and securities
- Interest in Limited Liability Partnership (LLP)
- Other assets such as paintings/sculptures/artefacts/jewellery/bullion.
Key limits and regulations
As an NRI/Person of Indian Origin (PIO)/Overseas Citizen of India (OCI), you can receive gifts within and outside India, from either a resident Indian or another NRI/PIO/OCI. As per the prevailing FEMA regulations and under the Liberalised Remittance Scheme (LRS), a resident Indian can give gifts to an NRI up to an aggregate of USD 250,000 per financial year (April-March).
Permissibility of gifts received by an NRI under FEMA
There is no restriction on the aggregate value of permissible gifts of Indian assets received from another NRI/PIO/OCI. However, there are limits on the repatriation of such gifts. There are permissibility constraints on the type of assets which can be given as gifts to NRIs. These are outlined in the below table:
Please note that tables are best viewed on desktops and in landscape mode on mobile phones.
| Sr. No. | Assets | Gifts received from resident Indian | Gifts (Indian assets) received from another NRI/PIO/OCI |
|---|---|---|---|
1 |
Bank transfers (including cash) |
||
Foreign currency |
For gift received during the current financial year, outward remittances under LRS limits would apply to the donor. |
As per FEMA, there is no upper limit to the transaction value. |
|
Indian currency |
Permitted from relatives only. |
Rupee gifts are not permitted to be credited to Non-Resident Ordinary (NRO) accounts. |
|
2 |
Immovable property situated in India |
|
|
3 |
Movable property |
||
Financial instruments in an Indian company. |
|
|
|
Other movable assets such as jewellery, archaeological collections and paintings. |
Permitted up to limits prescribed under LRS. |
As per FEMA, there are no restrictions. |
|
Repatriation rules for gifts
As an NRI, if you sell a gifted asset, the sale proceeds must be deposited into your NRO account. You can repatriate up to USD 1 million per financial year from the sale proceeds, regardless of the property's origin or purchase details. To know more about restrictions on repatriation of funds held in NRO accounts, click here.
Taxation on gifts in India for NRIs
As per section (3) of the Gift Tax Act, 1958, gift tax was abolished in India in 1998. You will not be taxed on the gifts received from relatives. Gifts received (from relatives or non-relatives) on the occasion of marriage, under a Will, or in contemplation of death of the donor are tax-free. However, in other instances, gifts received from non-relatives will be subject to taxation as below:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Type of Gifts | Liability under IT Act for all gifts received from non-relatives |
|---|---|
Cash |
If the money received (in aggregate) is in excess of ₹ 50,000 then, the entire gift amount is taxable. Taxable amount = Entire gift amount. |
Immovable Property |
If the gift received is: i. Without any payment and the Stamp Duty Value (SDV) of such property exceeds ₹ 50,000 then: Taxable amount = SDV of the property ii. With a payment and the SDV of such property exceeds the paid amount then: Taxable value* = SDV minus payment (if the SDV minus payment > |
Movable property such as shares and securities, jewellery, archaeological collections, drawings and paintings |
If the gift received is: i. Without any payment and the Fair Market value (FMV) of such property exceeds ₹ 50,000 then: Taxable amount = FMV of the property iii. With payment and the FMV of such property exceeds such payment then: Taxable value = FMV minus payment (if the FMV minus payment > |
*As per Section 56(2)(x) of the Income Tax Act, 1961
Illustration
Manoj receives a gift of:
- ₹30,000 and ₹25,000 in cash from his friends Paresh and Jyoti
- A valuable piece of artwork worth ₹70,000 (FMV) from Paresh
In accordance with the provision of the IT Act, the aggregate value of cash gifts received by Manoj is ₹55,000 (₹30,000 + ₹25,000). It exceeds the prescribed threshold of ₹50,000. Accordingly, he is liable to pay tax on the entire gift amount of ₹55,000.
The artwork received by him is without any payment and its FMV of ₹70,000 exceeds the threshold of ₹50,000. Therefore, this will also become taxable.
Put together, Manoj is liable to pay tax on ₹1,25,000 (₹55,000 + ₹70,000) received as a gift. The tax amount will be as per the prevailing tax rates outlined in the IT Act and the tax regime he has opted for.
Click here to read more income tax rates for NRIs.
Taxability of income arising from gifted assets
Any income arising on assets gifted to your minor children, spouse or son’s wife, will be taxable in the hands of the person who has gifted the asset and not in the hands of the recipient.
The income arising in India from gifted assets will be subject to the IT Act as under:
Income on gifted asset
Immovable property
- Self-occupied property has no tax implications for heirs. However, only up to two properties can be claimed as self-occupied properties in a financial year
- Rented property makes you liable to pay tax on rental income after considering the municipal taxes and standard deductions
To know more about the tax implications as an NRI landlord click here.
Asset other than immovable property
- Income from dividends on equity shares and mutual funds, which are gifted, are taxable as income from other sources
- Income from gifted fixed deposits, bonds or debentures is taxable as income from other sources
- These incomes are subject to taxation at the applicable slab rate, which is determined based on your total income in a financial year and the tax regime you have opted for
Click here to read more income tax rates for NRIs.
Sale of a gifted asset
Immovable property
When an asset is owned for more than 24 months, it is considered a long-term asset.
- If you are gifted a property, then the holding period of the previous owners is also taken into consideration. Therefore, in most cases, the sale of such property will result in long-term capital gain
- As per section 49(1) of the IT Act, 1961, while calculating the capital gain for such cases, the cost incurred by the previous owners must be considered. If the property was acquired before April 1, 2001, the cost of the property must be based on its cost on the date of acquisition or fair market value on April 1, 2001 *
Click here, to know about the sale of immovable property.
* Section 55 of the Income Tax Act, 1961
Listed shares and securities
- If you receive shares and securities from a relative, there are no tax implications on the date of gift. But if you receive shares from a non-relative, the FMV of such shares will be used to calculate the deemed tax liability on the date of gift received
- Further, if you sell the share (on which Securities Transaction Tax (STT) is paid at purchase and sale) after holding it for more than 12 months, it will be classified as a long-term capital gain
- If the asset was acquired before April 1, 2001, the cost of the asset must be based on its valuation on the date of acquisition or April 1, 2001
- As per section 112A of the IT Act, 1961, any such gain exceeding ₹1 lakh in either of the above categories, will be subjected to tax
Click here to read more about your tax liabilities while investing in the Indian stock market.
Any other asset (including unlisted shares)
When an asset is owned for more than 36 months, it is considered a long-term asset.
- If your asset is gifted, then the holding period of the previous owners is also taken into consideration. Therefore, in most cases, the sale of such assets will result in long-term capital gain
- As per section 49 (1) of the IT Act, 1961, while calculating the capital gain for such cases, the cost of previous owners must be considered. If the asset was acquired before April 1, 2001, the cost of the asset must be based on its valuation on the date of acquisition or April 1, 2001**
** Section 55 of the Income Tax Act, 1961
Please note, as an NRI, you will also need to consider the tax laws in your country of residence. Read more about how NRIs can claim benefits under the Double Taxation Avoidance Agreement (DTAA).
Conclusion
NRIs/PIOs/OCIs can receive gifted assets permitted as per the prevailing FEMA regulations as well as the rules under the IT Act, 1961. While no restrictions apply to gifts received from other NRIs/PIOs/OCIs, you can receive gifts up to USD 250,000 from a resident Indian. The tax implications associated with such gifts vary depending on the type of asset and the relationship between you and the individual who has gifted the asset. You should consult an expert to understand the tax implications of receiving gifts as an NRI.
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Frequently Asked Questions
Who is defined as a relative as per FEMA?
A relative* under FEMA is defined as below:
- Parents (including step-father and step-mother)
- Spouse
- Son and his wife
- Daughter and her husband
- Siblings (including step-brother and step-sister).
*Relative definition as per FEMA is the same as Section 2(77) of the Companies Act, 2013.
Who is defined as a relative as per the Income Tax Act, 1961?
The definition of the term ‘relative’ is wide under the Income Tax Act, 1961, as compared to FEMA and includes:
- Spouse
- Brother and his spouse
- Sister and her spouse
- Brother or sister of your spouse and their spouses
- Brother or sister of your parents and their spouses
- Any of your lineal ascendants (parent, grandparents etc.) or descendants (children, grandchildren etc.) and their spouses
- Any of your spouse’s lineal ascendants (parent, grandparents etc.) or descendants (children, grandchildren etc.) and their spouses.
How is the value of a gift determined?
- Immovable property (house, factory etc.): As per stamp duty valuation.
- Movable property other than shares and securities: At fair market value, the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date, or as determined by the registered property valuer.
- Shares and securities: As per the rules prescribed under the IT Act.
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