With the growing ease of global money transfers, it’s common for individuals to send or receive gifts across borders, whether between family members, friends, or business associates. However, when the sender or receiver is in India, such foreign remittances come under specific tax and compliance rules governed by the Income Tax Act, 1961, and the Foreign Exchange Management Act (FEMA), 1999. Understanding how these rules apply can help individuals avoid unintentional violations and optimize their financial decisions.

What Qualifies as a Gift Under Indian Law

A gift refers to any money or property transferred without consideration, meaning the recipient is not required to give anything in return. Gifts may include:

• Cash or bank transfers (in INR or foreign currency)
• Immovable property such as land, buildings, or apartments
• Movable property, including jewellery, art, vehicles, or shares
• Foreign securities and investments

Under FEMA, all foreign remittances must have a valid purpose code and be routed through authorized banking channels. Gifts that do not align with FEMA’s permitted transactions may be treated as unauthorised remittances.

Gifting Limits Under the Liberalised Remittance Scheme (LRS)

The Liberalised Remittance Scheme (LRS) allows resident Indians to remit up to USD 250,000 per financial year for permissible current or capital account transactions. Gifts sent abroad fall under this limit. When sending a gift, the remitter must declare the purpose as “gift remittance” and ensure compliance with RBI reporting norms.

Similarly, if a resident receives a gift from abroad, the sender must comply with their home country’s transfer regulations and use legitimate channels (e.g., SWIFT transfers). For gifts in the form of property or securities, prior RBI approval may be needed if the recipient is an NRI or foreign national.

Gift Taxation in India: Section 56(2)(x)

Although the Gift Tax Act, 1958 was abolished, the Income Tax Act now governs the taxation of gifts through Section 56(2)(x). This section specifies when a gift is taxable and who bears the tax liability.

1. Gifts From Relatives

These gifts are fully exempt from tax, irrespective of their value. The Income Tax Act defines “relatives” as:

• Spouse of the individual
• Brother or sister of the individual or their spouse
• Brother or sister of either parent
• Any lineal ascendant or descendant of the individual or their spouse (parents, grandparents, children, grandchildren, etc.)

2. Gifts From Non-Relatives

If the total value exceeds ₹50,000 in a financial year, the entire amount becomes taxable under “Income from Other Sources.” The applicable tax rate is based on the recipient’s income slab.

3. Gifts in Kind (Property or Assets)

• Immovable Property: If received without consideration and the stamp duty value exceeds ₹50,000, it is taxable at the property’s value.
• Movable Property (like jewellery or shares): Taxable if the fair market value exceeds ₹50,000.

Certain gifts remain tax-free such as those received on marriage, under a will, in contemplation of death, or from local authorities or charitable trusts.

Taxation for Gifts Received From Abroad

If you are a Resident Indian and receive a gift from a non-resident, taxation depends on who the sender is and the nature of the gift:

• Gift from a relative: Not taxable, regardless of amount.
• Gift from a non-relative: Taxable if the total value exceeds ₹50,000.
• Foreign property or investments: May attract additional compliance, including reporting under the Foreign Asset (Schedule FA) section of the Income Tax Return (ITR).

The foreign sender may also need to comply with their country’s gift tax or reporting obligations, especially in jurisdictions like the U.S. or U.K. where large remittances trigger IRS or HMRC scrutiny.

Gifts Sent Abroad by Resident Indians

When an Indian resident sends a gift to a person abroad, whether to an NRI relative or a friend, the following rules apply:

• The remittance must be within the USD 250,000 annual LRS limit.
• The sender is responsible for any Tax Collected at Source (TCS) under Section 206C(1G), currently applicable on certain foreign remittances exceeding ₹7 lakh.
• The receiver abroad may face tax implications in their country, depending on local laws.

If the gift involves immovable property in India, the transfer deed must comply with the Transfer of Property Act and be duly registered.

Clubbing of Income From Gifted Assets

If you gift an income-generating asset (like a fixed deposit, shares, or property) to a spouse, minor child, or son’s wife, the resulting income is clubbed with your own income under Sections 60–64 of the Income Tax Act.

For example, if you gift ₹10 lakh to your spouse and she earns ₹80,000 in interest, that ₹80,000 is added to your taxable income.

However, income generated from further reinvestment or from assets received as gifts from relatives (other than spouse/minor child/son’s wife) is not clubbed and remains taxable in the recipient’s hands.

Documentation and Reporting Requirements

To stay compliant and avoid tax scrutiny, individuals must maintain adequate documentation for cross-border gifts, including:

• Gift deed or declaration letter stating the donor-recipient relationship
• Bank transfer records or SWIFT receipts
• Property valuation reports (for asset gifts)
• Proof of relationship when claiming exemption (birth/marriage certificates)
• Schedule FA disclosures for any foreign assets acquired

Non-disclosure of such gifts or foreign assets may lead to penalties under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015.

Double Taxation Relief for Foreign Gifts

In certain cases, the same gift may attract tax in both countries, in the sender’s country as a gift and in India as income. India’s Double Taxation Avoidance Agreements (DTAAs) provide relief where applicable. Taxpayers can claim a Foreign Tax Credit (FTC) by filing Form 67 under Rule 128 of the Income Tax Rules.

This ensures that taxes paid abroad are offset against the Indian tax liability on the same income or asset.

Practical Example

Case 1: An Indian resident receives USD 20,000 (₹16.5 lakh) from an uncle residing in the U.S.
Since the sender is not considered a “relative” under Indian law, and the amount exceeds ₹50,000, the full ₹16.5 lakh is taxable in India as “Income from Other Sources.”

Case 2: An NRI daughter gifts ₹5 lakh to her father in India.
As the gift is from a close relative, it is exempt from tax for both parties.

Case 3: A U.K.-based friend gifts ₹40,000 to an Indian resident.
The total is under ₹50,000, hence exempt.

Penalties and Non-Compliance

Failure to disclose taxable foreign gifts can attract:

• Penalties of up to 300% of tax sought to be evaded under Section 271(1)(c)
• Additional interest under Sections 234A/B/C
• Penalties under the Black Money Act for undisclosed foreign assets (ranging from ₹10 lakh to ₹1 crore)

Therefore, accurate reporting and documentation are crucial for compliance.

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Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. Please consult a qualified tax professional for guidance based on your individual situation.