Tax implications on NRIs receiving gifts in India

The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of March 31, 2024.

As Non-Resident Indians (NRIs), you may receive gifts from relatives or friends who are Indian residents or NRIs. This article discusses how gifts received by NRIs are taxed in India.

Understanding gifts

The permissibility for receipt of gift is regulated by the Foreign Exchange Management Act, 1999 (FEMA), and its taxability under the Income Tax Act, 1961 (IT Act).

A ‘gift’ is any asset or money that you, as an NRI, receive from another person without any consideration. Here, ‘without any consideration’ means that you, as a receiver of the gift, do not have any obligation or liability to pay back in any manner. These assets could take the form of: 

• Liquid funds
• Immovable properties
• Shares and securities
• Interest in Limited Liability Partnership (LLP)
• Other assets such as paintings/sculptures/artefacts/jewellery/bullion

Key limits and regulations

As an NRI/Person of Indian Origin (PIO)/Overseas Citizen of India (OCI), you can receive gifts within and outside India, from either a resident Indian or another NRI/PIO/OCI. As per the prevailing FEMA regulations and under the Liberalised Remittance Scheme (LRS), a resident Indian can give gifts to an NRI up to an aggregate of USD 250,000 per financial year (April-March).

Permissibility of gifts received by an NRI under FEMA

There is no restriction on the aggregate value of permissible gifts of Indian assets received from another NRI/PIO/OCI. However, there are limits on the repatriation of such gifts. There are permissibility constraints on the type of assets which can be given as gifts to NRIs. These are outlined in the below table:

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Repatriation rules for gifts

As an NRI, if you sell a gifted asset, the sale proceeds must be deposited into your NRO account. You can repatriate up to USD 1 million per financial year from the sale proceeds, regardless of the property's origin or purchase details. To know more about restrictions on repatriation of funds held in NRO accounts, click here.

Taxation on gifts in India for NRIs

As per section (3) of the Gift Tax Act, 1958, gift tax was abolished in India in 1998. You will not be taxed on the gifts received from relatives. Gifts received (from relatives or non-relatives) on the occasion of marriage, under a Will, or in contemplation of death of the donor are tax-free. However, in other instances, gifts received from non-relatives will be subject to taxation as below:

Please note, tables are best viewed on desktops and in landscape mode on mobile phones.

*As per Section 56(2)(x) of the Income Tax Act, 1961

Illustration

Manoj receives a gift of:

• ₹30,000 and ₹25,000 in cash from his friends Paresh and Jyoti

• A valuable piece of artwork worth ₹70,000 (FMV) from Paresh

In accordance with the provision of the IT Act, the aggregate value of cash gifts received by Manoj is ₹55,000 (₹30,000 + ₹25,000). It exceeds the prescribed threshold of ₹50,000. Accordingly, he is liable to pay tax on the entire gift amount of ₹55,000. 

The artwork received by him is without any payment and its FMV of ₹70,000 exceeds the threshold of ₹50,000. Therefore, this will also become taxable.

Put together, Manoj is liable to pay tax on ₹1,25,000 (₹55,000 + ₹70,000) received as a gift. The tax amount will be as per the prevailing tax rates outlined in the IT Act and the tax regime he has opted for.

Click here to read more income tax rates for NRIs.

Taxability of income arising from gifted assets

Any income arising on assets gifted to your minor children, spouse or son’s wife, will be taxable in the hands of the person who has gifted the asset and not in the hands of the recipient. 

The income arising in India from gifted assets will be subject to the IT Act as under:

Income on gifted asset

Immovable property

• Self-occupied property has no tax implications. However, only up to two properties can be claimed as self-occupied properties in a financial year

• Rented property makes you liable to pay tax on rental income after considering the municipal taxes and standard deductions

To know more about the tax implications as an NRI landlord click here.

Asset other than immovable property

• Income from dividends on equity shares and mutual funds, which are gifted, are taxable as income from other sources

• Income from gifted fixed deposits, bonds or debentures is taxable as income from other sources

• These incomes are subject to taxation at the applicable slab rate, which is determined based on your total income in a financial year and the tax regime you have opted for

Click here to read more income tax rates for NRIs.

Sale of a gifted asset

Immovable property

When an asset is owned for more than 24 months, it is considered a long-term asset.

• If you are gifted a property, then the holding period of the previous owners is also taken into consideration. Therefore, in most cases, the sale of such property will result in long-term capital gain
• As per section 49(1) of the IT Act, 1961, while calculating the capital gain for such cases, the cost incurred by the previous owners, the cost of the property would be higher of, Actual cost of acquisition of the property or; Fair market value as on 1.4.2001*.

   

  However, as per recent amendment in law, the fair market value as on April 1, 2001, has been capped as not exceeding the 'stamp duty value' (value adopted by any authority for the purpose of payment of stamp duty).

Click here, to know about the sale of immovable property.

* Section 55 of the Income Tax Act, 1961

Listed shares and securities

• If you receive shares and securities from a relative, there are no tax implications on the date of gift. But if you receive shares from a non-relative, the FMV of such shares will be used to calculate the deemed tax liability on the date of gift received
• Further, if you sell the share (on which Securities Transaction Tax (STT) is paid at purchase and sale) after holding it for more than 12 months, it will be classified as a long-term capital gain
• If the asset was acquired before April 1, 2001, the cost of the asset must be based on its valuation on the date of acquisition or April 1, 2001
• As per section 112A of the IT Act, 1961, any such gain exceeding ₹1 lakh in either of the above categories, will be subjected to tax
• If you have received any listed shares, equity oriented mutual fund units, or business trust units which has been acquired by previous owner before 1st February 2018, the cost of the asset will be the higher of:

   

  • The actual price paid to buy it (cost of acquisition), and
  • The lower of these two:

     

    • The highest price quoted on a recognised stock exchange on 31st January 2018 (fair market value), and
    • The price at which you sold the asset.

       

      Fair market value means the highest price of the asset on a recognised stock exchange on 31st January 2018.

Click here to read more about your tax liabilities while investing in the Indian stock market.

Any other asset (including unlisted shares)

When an asset is owned for more than 24 months, it is considered a long-term asset.

• If your asset is gifted, then the holding period of the previous owners is also taken into consideration. Therefore, in most cases, the sale of such assets will result in long-term capital gain
• As per section 49 (1) of the IT Act, 1961, while calculating the capital gain for such cases, the cost of previous owners, the cost of the asset would be higher of Actual cost of acquisition of the property or Fair market value as on 1.4.2001**.

** Section 55 of the Income Tax Act, 1961

Please note, as an NRI, you will also need to consider the tax laws in your country of residence. Read more about how NRIs can claim benefits under the Double Taxation Avoidance Agreement (DTAA).

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