Gift Tax for Non resident Indians | NRI Gift Tax

The following are few terms defined under the Income Tax Act, 1961, which help an assessee, understand better about gift tax provisions:

Coverage under gifts :

1. Property
2. Relatives
3. Jewellery
4. Immovable property

 Property :

• Immovable property being land or building or both,
• Shares and securities,
• Jewellery,
• Archaeological collections,
• Drawings,
• Paintings,
• Sculptures,
• Any work of art.

Relatives :

• Spouse (Husband or wife),
• Brothers,
• Sisters,
• Spouse’s brother,
• Spouse’s sister,
• Parents,
• Parents of the spouse,
• Lineal ascendants of individual or spouse,
• Brothers or sisters of parents of individual or spouse.

 Jewellery – 

1. Ornaments made of gold, silver, platinum or any other precious metal, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into wearing apparel,
2. Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

Stamp Duty Value:

 The value adopted or assessed or assessable by any authority of the Central Government or a State Government the purpose of the stamp duty in respect of the immovable property.

When gift tax provisions were re-introduced in 2004, it included the cases on which tax is levied in the hands of the receiver – 

1. Gifts received by an individual other than relatives, in excess of ` 50,000 will be taxed in the hands of the receiver as gift tax.
2. The value of the gift is added to the total income of the receiver under the head ‘Income from Other Sources’ and tax is calculated thereon.
3. Gifts would be in the form of cash or kind. For gifts in kind such as property, jewellery, etc., valuation is done applying specific rules, and such asset must necessarily arise in India.
4. In the case of immovable property, the value will be based on stamp duty of the property and in case of any other property as defined above value is based on the fair market value of such property.

Before we understand the provisions of gifting of properties and their tax implications, let us see to whom a non-resident Indian can gift property to or receive from and other instances of a non-resident Indian making or receiving gifts and whether they will be taxable or not – 

1. Non-resident Indian (NRI) can gift property to – A NRI can gift property, whether residential or commercial to:
2. A resident Indian, or
3. Another non-resident Indian, or
4. Person of Indian Origin (PIO)
5. A foreign national of non-Indian origin needs prior approval of the Reserve Bank to gift a property in India
6. In the case of agricultural land, plantation land and a farmhouse can be gifted only to a resident Indian and not to another NRI/PIO.
7. A resident individual is permitted to make a rupee gift to a non-resident Indian – 
8. Who is a close relative as defined under the Act,
9. The amount of gift should be within an overall limit of USD 2,50,000 per financial year as permitted under the Liberalized Remittance Scheme (LRS) 
10. If permission as been taken by the resident individual under LRS, he can gift up to USD 2,50,000 without seeking permission from the Reserve Bank of India. Any amount above USD 2,50,000, RBI approval is required.
11. The scheme of LRS is not available to corporations, partnership firms, HUFs, trusts, etc.
12. When non-resident sends money to his account maintained in India that is NRO, NRE, or any other account, there will not be any tax on such transaction. NRI can gift from his NRE account to his/her parents in India without their parents suffering from tax.
13. Non-resident Indians can gift in the form of cash, cheque, or any article or goods – 
14. To relatives – exempt from tax irrespective of the value of the gift,
15. To non-relatives – exempt from tax up to ` 50,000 in aggregate in one financial year.
16. If a non-resident Indian gift shares to an Indian resident – 
17. Such a gift would not be taxable in the hands of the donor, but 
18. Recipient of shares will be taxed in India, if the fair market value of such shares exceeds ` 50,000 and if the recipient does not qualify to be a relative.

There is a valuation aspect in case of the gift made in kind. The valuation of immovable property differs from that of other properties. Let us understand how are these two valued to pay gift tax on receiving such gifts – 

In the case of Immovable Properties –

1. If the property is gifted without any consideration and stamp duty value exceeds ` 50,000, gift value is the stamp duty value,
2. If the property is gifted for sales consideration, then the actual cost of the property will be taken.

In the case of Other Properties – 

1. If gifted without consideration and fair market value exceeds ` 50,000, then fair market value will be taken,
2. If gifted for sales consideration and the fair market value less sales consideration is greater than ` 50,000 then fair market value less consideration amount will be taken as the value of the gift.