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What is the Gift Tax in India and How Does it Affect NRIs?

Gift Tax in India

Gift Tax is an Indian law which regulates the gifts given by one person to another, who are not close relatives as defined by the Income Tax Law of India. These gifts include any movable or immovable asset and can be made voluntarily and without consideration in money or money’s worth. There are some gifts that are exempt from tax.

History of Gift Tax

Gift Tax was first introduced in India in 1st April,1958, where all gifts between unrelated persons above the amount of Rs 25000, were taxable. The gifts could be in the form of cash, demand draft, bank cheques, or anything else which had value, above the threshold were brought into the preview of this new tax. On 1st October, 1998, Gift Tax was demolished & gifts of any value were no longer taxable. In 2004, a special provision was added into the Income Tax Law of India and Gift tax was reintroduced. This reintroduction was done with a higher limit of Rs 50000 & even Hindu Undivided Families were brought into the ambit of the tax.

Definition of Donor & Donee

Donor means a person who is making or giving the gift.

Donee means a person who acquires the asset either movable or immovable from a donor. When gifts are made to a Trust, then the Donee are the Trustees and the beneficial owner, of that asset. The beneficial owner are those, who enjoy the asset which are under the gift.

Sources of Gifts

Under the provisions of the law, a person can receive the gift under the following circumstances:

  1. Gifts from close or blood relatives.
  2. Gifts received at the time of Marriage.
  3. Gifts that are received by legacy or inheritance.
  4. Gifts received in contemplation of Death of the Donor.

Gifts Exempt from Tax

Certain gifts are not taxable or exempt from this tax. They are:

  1. Gifts given by blood or close relatives, irrespective of the value.
  2. Immovable property located outside India.

Restrictions on moving gifts abroad

Any individual cannot take his or her movable asset out of India, unless the donor:

  • Is an Indian Citizen, who was originally a resident of India or the individual received the gift when he or she was not a resident of India in that financial year.
  • Gifts the balance of the Non Resident Bank Account.
  • Foreign Currency gifts of convertible foreign exchange, sent from abroad by an non resident Indian to a resident Indian.
  • Foreign Exchange asset gifts by a non resident to his or her relatives.
  • Special Bearer Bonds 1991.
  • Savings Certificates issues by the central government.
  • Capital Investment Bonds up to Rs 10 lacs or Rs 1 million in a year.
  • Relief Bonds gifts by an original subscriber.
  • Gifts of certain bonds from NRIs to his or her relatives, which are subscribed in foreign exchange and are specified by the central government.
  • Gifts to Government or Local Authority.
  • Gifts to any charitable organizations.
  • Gifts to notified temples, mosques, churches or other places of worship.
  • Reasonable amount of gifts to children for educational purposes.
  • Gifts by employers to their employees in the form of bonus, gratuity or pensions.
  • Gifts under Will.
  • Gifts in contemplation of death.

Gifts pertaining to Non Resident Indians

  • When a non resident Indian parent, child or relative transfer cash or property as gift, it is not taxable in the hands of the resident recipient.
  • Gifts of immovable property abroad is not taxable.
  • Gifts to parents from NRE accounts of children are not taxable.

Points to be remembered by the Donor

  • Money gifted to someone, no tax is payable
  • No deduction is available of the gifted amount from the Total Income, in the financial year
  • If your wife and or daughter-in-law are unemployed and they have gift income, the the income earned from the gift can be clubbed in the income from the earning person in the family.
  • Income from investments from gift income is taxable in the hands of the receiver alone.

How to be stress free do everything within the legal ambit

  1. Always document keep the receipt of the gift and the gift certificates
  2. If you are receiving a movable asset as a gift, ensure that the donor provides a signed and stamped gift deed .
  3. If, immovable asset is gifted, it is important to ensure that the donor transfers the same in your name with a registration and a gift deed is obtained.
  4. If you have loaned a friend or relative in excess of Rs 50000, and it had been repaid back to you, keep the bank statements and relevant documentary proofs like IOUs, etc. Additionally, ff the loan was given in cash via an ATM withdrawal, keep the ATM slip for records, so as to satisfy any subsequent question regarding the same if it were a gift or not.
  5. Always advise your friends and family while making the gift that it may be taxable and they get it checked by their accountants.
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