Gift to NRI by Resident Indian

The Income Tax Act defines a gift as any asset received without consideration or against inadequate consideration like money or money’s worth. It can be in the form of cash, movable property, or immovable property. In the below article, we will understand how giving or receiving these items as gift to NRI by resident Indian or vice-versa can bring in tax implications and who has to bear them.

  • The movable property shall also include shares, securities, jewelry, archaeological collection, drawing, painting, any work of art, bullion, vehicles, etc.
  • Immovable property shall include land or building or both (it does not include agricultural land in rural areas)

Taxability on Gifts to NRI by Resident Indian

  • For non-residents, only the income which is received or accrued or which is deemed to have been received or accrued in India is taxable in India. This means that the origin of the gift becomes important for tax purposes, instead of the destination of the gift abroad.
  • Further, the treatment of tax on gift to NRI by resident Indian shall depend on gifts to relatives and non-relatives.
  • The below chart depicts the status of taxability:-
 Sr no Particulars Taxability
1. Money (cash, cheque, draft) If money > 50,000; whole amount taxable
2 Value of gifts received less than INR 50000 Not taxable
3 Property/money on the occasion of marriage Completely exempt irrespective of the value
4 Gifts from Specified Relatives Not taxable
5 Gifts from Other than Specified Relatives Not taxable if Value is < 50,000/-
6 Movable Property received as a gift. Taxable if Value > Rs 50,000/- &  received from other than Specified Relatives
7 Immovable Property (Land/House) received as a gift Taxable if Stamp Duty Value > Rs 50,000/- & received from other than Specified Relatives
8 Gifts in the form of shares and securities  The total value can’t exceed INR 50,000/- in one financial year
  • The gift would be taxable if it is in the nature of capital assets in the hands of the recipient. However, any gifts in the nature of stock, raw materials, or consumables that can be used by the recipient in his/her business operation, will not be considered as a capital asset and thus will not be taxable.
  • NRIs have to declare all the taxable gifts while filing Income Tax Returns in India.
  • The gift would be chargeable to tax under the head “Income from other sources” and at normal slab rates.
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Exemption of Gifts

Under the following situations, receipt of gifts shall be non-taxable in hands of recipient irrespective of monetary value:

  • Gift received :
    • from relatives*
    • On the occasion of the marriage,
    • Under a will or by way of inheritance.
    • In contemplation of death of the payer.
    • From local authority.
    • A fund, foundation, university, other educational institution, or other medical institution, hospitals, or any trust or institution defined in Section 10(23C), any trust or institution registered under section 12AA.
  • Further, these exceptions would be applicable even in the context of gift to NRI by resident Indian.

Relative*: Given below is a list of people considered as relatives under the tax regulations:

  • Spouse of the individual
  • Brother and sister (including their respective spouses) of both individual and his/her spouse
  • Brother and Sister (including their respective spouse) of an individual’s father and mother
  • any lineal ascendant or descendant (including their respective spouses) of the individual
  • any lineal ascendant or descendant (including their respective spouses) of the spouse of the individual
  • Everyone else is simply considered as a non-relative.

A Gift to a Resident Indian by NRI

  • Gift received from NRI relative to a resident Indian is exempt from tax in India for both giver and receiver
  • Gifts to Resident Indians from NRIs (non-relative) within INR 50,000/- are exempt from tax for both giver and receiver
  • On gifts to Resident Indians from NRIs (non-relative) exceeding INR 50,000/-, receiver shall be liable to pay tax on the gift. (This shall be taxable as per their income tax slab)
  • Gifts to Resident Indians from NRIs (irrespective of relation) on the occasion of marriage or through a will is exempted from tax in India for both giver and receiver

Another very important aspect while sending or receiving gifts is keeping a record of the same through gift deeds. Furthermore signing a gift deed and keeping them safe can help you to avoid major issues in the future.

FAQ

I am an NRI. If I gift INR 10 lakh to my daughter in India and if she invests it in a bank fixed deposit, will either of us be liable to pay income tax?

As per Section 56(2), any sum received from relatives is exempt from tax. So, if this amount is received as gift from a father, it will be exempt in her hand. Further, as per Section 64, income generated from this gifted amount will be clubbed in her income and she will be required to pay tax and file the return in India if her gross total income exceeds the minimum exemption limit of INR 2,50,000.

How much money can be legally given to a family member as a gift in India?

While gifts received by any person above INR 50,000 are taxable, there are special exemptions for gifts to some specific relatives like children and parents. However there is no limit on the amount that can be gifted.

Can resident gift shares to NRIs?

Gifts from Resident Indians to NRIs in the form of shares and securities of an Indian Company, the total value can’t exceed INR 50,000/- in one financial year. Further, the gift should follow the regulations of RBI

Tax on Gifted Shares & Securities

A gift is a sum of money or movable property or immovable property received without consideration or inadequate consideration. Tax on shares gifted is defined under Section 56(2) of the Income Tax Act.

A gift of monetary value exceeding INR 50,000 is taxable as Income from Other Sources (IFOS) at slab rates. The gift received from a relative, or on the occasion of marriage, as inheritance or in contemplation of death is exempt from tax.

Gift of Shares & Securities

Shares and securities are considered as movable property. Trading plaforms like Zerodha have built a platform to gift stocks, mutual funds and bonds after introduction of e-DIS (electronic delivery instruction slip) by CDSL. Thus, it is now possible to gift stocks and securities to friends and relatives online.

Tax on Shares Gifted for Sender

  • On transfer of shares & securities:
    • The Gift Tax Act (GTA) was abolished in 1988 and thus sender need not pay tax on gifts.
    • As per Section 2(14) of the Income Tax Act, shares and securities are Capital Assets. The transfer of a Capital Asset is taxable as Capital Gains. However, the definition of ‘transfer’ as per Section 47 specifically excludes gifts. Thus, the gift of shares and securities is not taxable in the hands of the sender of the gift.
  • On the sale of shares & securities:
    • The sale of shares & securities is not taxable in the hands of the sender of the gift.
    • Clubbing of Income – If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.

Tax on Shares Gifted for Receiver

  • On transfer of shares & securities:
    • If the monetary value of shares & securities is up to INR 50,000, such gift is exempt from tax.
    • If the monetary value (FMV) of shares & securities is more than INR 50,000, such gift is an IFOS income and taxed at slab rates.
    • Shares & Securities received from a relative is exempt income since gift from relative is exempt as per Sec 56(2)(vii)
    • Shares & Securities received on the occasion of marriage or inheritance or in contemplation of death of payer is exempt income since such gifts are exempt as per Sec 56(2)(vii)
  • On the sale of shares & securities:
    Capital Gains tax would arise on the sale of shares. To calculate the tax on gifted shares, the following must be noted:
    • Period of Holding: Calculate the holding period from the date of purchase by the previous owner i.e. sender of gift to the date of sale by the receiver of the gift.
    • LTCG – Equity Shares held for more than 12 months from date of purchase by the sender to date of sale.
    • STCG – Equity Shares held for up to 12 months from date of purchase by the sender to date of sale.
    • Purchase Date – The date of purchase by the previous owner i.e. sender of the gift
    • Purchase Value – The value of the purchase of the previous owner i.e. sender of the gift
    • Sale Date – The date of sale by the receiver of the gift
    • Sale Value – The value of the sale by the receiver of the gift
    • Tax Liability – Calculate tax liability as per the nature of the capital asset
Transaction Sender Receiver
Gift of shares & securities Not taxable Exempt Income or IFOS Income
Sale of shares & securities Not taxable Capital Gains

Clubbing of Income – If the receiver of the gifted asset is a spouse or minor child, any income that arises directly or indirectly from such asset is clubbed with the income of the sender as per Section 64(1)(iv) & Section 64(1A) of the Income Tax Act.

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Example

Rajiv purchased 2000 shares at INR 100 of ABC Ltd on 15th February 2020. He gifted 1000 shares to his mother, Shweta on 1st September 2020. FMV on 01/09/2020 was INR 200 per share. Shweta sold out these shares on 2nd March 2021 at INR 400. Calculate the tax liability.

Tax treatment for Rajiv (sender) – No tax liability since the gift of shares is not treated as a transfer of capital asset.

Tax treatment for Shweta (receiver)

  • On receiving a gift – no tax liability since gift from a relative is an exempt income as per Section 56(2)(vii) of Income Tax Act.
  • On the sale of shares. Here is the tax calculation:
    • Sale Date – 02/03/2021
    • Sale Value – INR 4,00,000 (400 * 1000)
    • Purchase Date – 15/02/2020 (as per previous owner)
    • Purchase Value – INR 1,00,000 (100 * 1000) (as per previous owner)
    • LTCG – 4,00,000 – 1,00,000 = INR 3,00,000
    • Tax on LTCG u/s 112A = 10% * 2,00,000 = INR 20,000

Reporting in ITR – Tax on Shares Gifted

The sender of the gift need not report the gift in the Income Tax Return. The receiver of the gift should report the gift under Schedule Exempt Income if the income is exempt or Schedule OS (IFOS) if the income is taxable. If the gift is taxable, calculate tax liability at slab rates.

On the sale of such shares & securities, report income as capital gains under Schedule CG. The taxpayer should file ITR-2 on the income tax website and pay tax at applicable rates.

Documentation

It is very important to maintain proper documentation for gift transactions. It is advisable for the sender and receiver to maintain a registered a gift deed as a proof of the gift transaction. In cases of scrutiny, this document can be used to justify the genuineness of the gift transaction and avoid charges for tax evasion.

FAQs

I have 1 lac shares. If I gift 50% shares to my brother, can we both claim LTCG exemption of INR 1 lac on sale of such shares?

If you gift equity shares, it is not considered as the transfer of a capital asset, and thus income tax is not applicable. A gift from a relative is exempt and thus it would be exempt for your brother. When your brother will sell the shares, capital gains would arise.
You can both claim the benefit of LTCG exemption of up to INR 1 lakh u/s 112A. However, to determine the nature of the gains, the holding period & cost of acquisition is calculated as per the previous owner (sender).

I want to gift shares to my friend, is it taxable?

If the monetary value of the gift is up to INR 50,000, it is not exempt as per Sec 56(2)(vii).
If the monetary value of the gift is more than INR 50,000, it is taxable in the hands of the receiver as IFOS and taxed at slab rates.
However, if the gift is given on the occasion of marriage, it is exempt as per Section 56(2)(vii) of the Income Tax Act.

Can I save taxes by gifting shares to my wife?

Gift of shares and securities to a relative is not taxable in hands of the sender of the gift and exempt in hands of the receiver of the gift. If you gift shares to your wife, there would be no tax liability on the gift transaction. Further, if your wife sells the shares, Capital Gains would arise and tax should be paid at applicable rates. On gifting of shares, the income would get divided and both can enjoy exemption limits. Thus, taxes would be saved.

Tax on Gift: Rules and Exemptions As per Income Tax Act in India

What is Gift as per Income tax Act?

Gift as per Income tax act means property (both movable and immovable) and money (cash, cheque, draft, etc) received without consideration or against inadequate consideration. Let’s understand what movable and immovable property include on which income tax provisions apply:

  • Immovable property: Land or building or both (it does not include agricultural land in rural areas)
  • Movable property: Shares, securities, jewellery, archaeological collection, drawing, painting, any work of art, bullion, vehicles, etc.

When are Gifts taxable?

  • Gifts received are taxable if the monetary value of all gifts received without consideration by the recipient exceeds INR 50,000. The whole amount would be taxable. For Example, Rohan received Gifts of monetary value INR 7000 from each of his 10 friends, the whole INR 70,000 will be taxable since the monetary value of all gifts received exceed INR 50,000.
  • However, when a gift is received against inadequate consideration, it will be taxable when the shortfall of the consideration received, exceeds INR 50,000. In such a case, the whole amount of shortfall will be taxable. For Example, Nisha received INR 10,000 each from her 10 friends. She contributed back INR 1000 to each of her friends. In this case, the shortfall of INR 70,000 will be taxable in the hands of Nisha.
  • The gift would be taxable if it is in the nature of capital assets in the hands of the recipient. Any gifts in the nature of stock, raw materials, or consumables that can be used by the recipient in his/her business operation, will not be considered as a capital asset and thus will not be taxable.
  • The gift would be chargeable to tax under the head “Income from other sources” and at normal slab rates.

When Gifts received are exempt from tax?

Under the following situations, gifts received are non-taxable in hands of recipient irrespective of monetary value:

  • Gift received :
    • from relatives*
    • On occasion of the marriage,
    • Under will/by way of inheritance.
    • In contemplation of death of the payer.
    • From local authority.
    • A fund, foundation, university, other educational institution, or other medical institution, hospitals, or any trust or institution defined in Section 10(23C), any trust or institution registered under section 12AA.

Relative*

  • Spouse of the individual
  • Brother and sister (including their respective spouses) of both individual and his/her spouse
  • Brother and Sister (including their respective spouse) of an individual’s father and mother
  • any lineal ascendant or descendant (including their respective spouses) of the individual
  • any lineal ascendant or descendant (including their respective spouses) of the spouse of the individual

Here is the summary of all the scenarios for better understanding:

Gift Consideration Amount taxable
Money (cash, cheque, draft) Nil If money > 50,000; whole amount taxable
Immovable property Nil If Stamp duty value > 50,000; Stamp duty value would be taxable
Immovable property (as defined above) Received which is less than stamp duty value by an amount exceeding Rs 50,000 [Stamp duty value – consideration] would be taxable
Agricultural land in rural area Nil/received Nil
Movable property (as defined above) Nil Fair market value > 50,000; Fair market value would be taxable
Movable property (as defined above) Received which is less than Fair market value by an amount exceeding Rs 50,000 Fair market value – consideration > 50,000 Fair market value would be taxable
Property/money on the occasion of marriage Nil/received Completely exempt irrespective of value
Any gifts not included in definition above Nil/received Completely exempt irrespective of value

Provision Relating to Stamp Duty for Gift Tax

In order to calculate gift tax for immovable property, stamp duty value must be considered. There is a possibility that the stamp duty can be higher for reasons like time gap between the agreement fixing the consideration and date of registration. Hence, for calculating gift tax stamp duty value as on the date of agreement fixing the consideration must be taken into consideration if the following conditions are satisfied:

  • If the consideration is paid either fully or partially via account payee cheque, bank draft or digital mode on or before the date of agreement for the transfer
  • Date of the agreement and the date of registration is different
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FAQs

Are monetary gifts received from friends liable to tax?

Gifts received from relatives are not charged to tax.
Friend is not a relative as defined in the list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).​

Is gift in cash taxable?

Gift of money: Aggregate value of cash gifts received without consideration during a financial year would be taxable as Income from Other Sources in the hands of the recipient. However, if the aggregate value of such gifts is less than Rs 50,000, then it would be exempt from tax