- Meaning of “Gift” under Indian Law
In Indian law, a gift may take the form of:
- Money, whether in cash or through banking channels
- Movable property, such as jewellery, shares, securities, artwork, or bullion
- Immovable property, including land, flats, or residential houses
For income-tax purposes, a gift generally refers to an asset transferred without consideration or for inadequate consideration. Whether a gift is taxable depends primarily on:
- The type of asset received, and
- The relationship between the donor and the recipient.
- Taxability of Gifts in India – Money
The Income-tax Act, 1961 treats certain gifts as taxable income.
If an individual receives money, immovable property, or specified movable assets from a non-relative, and the total value exceeds ₹50,000 in a financial year, the entire value becomes taxable under the head “Income from Other Sources.”
The ₹50,000 limit is an aggregate annual threshold, not a per-transaction limit.
Gifts That Remain Fully Exempt
The following gifts are exempt from tax, regardless of their value:
- Gifts received from relatives as defined under the Act
- Gifts received on the occasion of marriage
- Gifts received under a will or by inheritance
- Gifts received in contemplation of death
- Gifts from specified charitable or approved institutions
In gift taxation, the relationship with the donor and the occasion often determine whether tax applies.
Who Qualifies as a “Relative” for Gift Exemption?
For the purpose of gift taxation, the following persons are treated as relatives:
- Spouse
- Brother or sister
- Brother or sister of the spouse
- Brother or sister of either parent
- Lineal ascendants and descendants (parents, grandparents, children, grandchildren)
- Lineal ascendants or descendants of the spouse
- Spouse of any of the above persons
Persons such as cousins, nephews, nieces, and friends are not covered under this definition.
- Taxability of Gifts – Movable and Immovable Property
- Specified movable assets (shares, jewellery, artwork, bullion, etc.) are taxed based on their fair market value (FMV) on the date of receipt.
- Immovable property is valued based on the stamp duty value adopted by the state authorities.
Important Points:
- Gifts received from specified relatives are completely exempt, irrespective of the asset type or value.
- Gifts received from non-relatives are exempt only up to ₹50,000 in a financial year. Once this limit is crossed, the entire value becomes taxable under Section 56(2)(x).
- Personal-use items such as mobile phones, household furniture, or appliances are not treated as taxable gifts.
- Gifts received on marriage remain fully exempt, even if received from non-relatives.
- Gifts Involving NRIs – Tax and FEMA Perspective
When either the donor or recipient is an NRI, two laws apply simultaneously:
- Income-tax law, which decides taxability, and
- FEMA and RBI regulations, which control how funds or assets move across borders.
While taxability is determined under the Income-tax Act, the method of transfer and repatriation must strictly comply with FEMA and RBI guidelines.
4A. Gift Remittances under the Liberalised Remittance Scheme (LRS)
Under RBI’s Liberalised Remittance Scheme, a resident individual may remit up to USD 250,000 per financial year for permitted purposes, including gifts.
TCS on LRS Gifts
- With effect from 1 April 2025, banks collect Tax Collected at Source (TCS) on LRS remittances exceeding ₹10 lakh in a financial year.
- For gift remittances, TCS is charged at 20% on the amount exceeding ₹10 lakh.
- TCS is collected at the time of remittance by the bank or authorised dealer.
- TCS is not a final tax and functions like advance tax.
- The resident donor can adjust the TCS against tax payable or claim a refund when filing the income-tax return.
4B. USD 1 Million Repatriation Scheme via NRO Account
An alternative approach is routing the gift through the NRI’s NRO account in India.
In this case:
- The resident transfers rupee funds to the NRO account.
- No outward remittance occurs at this stage, and TCS under LRS is not applicable.
- The NRI may later repatriate funds up to USD 1 million per financial year under RBI’s repatriation facility, subject to documentation and tax compliance.
Example:
If ₹20 lakh is gifted to an NRI:
- Direct LRS transfer: TCS of 20% applies on ₹10 lakh, resulting in ₹2 lakh collected upfront.
- NRO route: ₹20 lakh credited to NRO without TCS; repatriation done later under the USD 1 million scheme after submitting required documents.
Banks may require gift declarations, Form A2, Form 15CA/CB, and tax clearance before permitting repatriation.
- Documentation and Compliance
Maintaining proper records is critical for both tax and FEMA compliance.
- Immovable property: Registered gift deed and payment of stamp duty as per state law
- Money or movable assets: Written gift declaration mentioning donor, recipient, relationship, value, and purpose
- Cross-border transfers: Bank advices, Form 15CA/CB, Form A2, and valuation reports where applicable
- Income-tax reporting:
- Taxable gifts must be disclosed under “Income from Other Sources”
- Exempt gifts should be correctly reported and supported with documentation
Banks are required to conduct KYC and FEMA checks, and large-value transactions may be reviewed in detail. RBI and Government guidelines may change periodically and should be verified before executing significant cross-border gifts.
Summary
- Gifts from relatives, on marriage, or by inheritance are generally exempt from tax.
- Gifts from non-relatives exceeding ₹50,000 in a year are fully taxable in the recipient’s hands.
- Resident-to-NRI gifts under LRS are subject to an annual limit of USD 250,000 and may attract 20% TCS beyond ₹10 lakh.
- TCS is adjustable or refundable through the income-tax return.
- Transferring funds to an NRI’s NRO account and later repatriating under the USD 1 million scheme is a widely used alternative, subject to compliance.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc