Presently, gifts given as (any sum of money paid or property transferred) by a resident Indian to a non-resident is claimed as non-taxable in India as the income does not arise or accrue in India. But with the proposed amendment in the Union Budget 2019, such gifts made on or after July 5, 2019 to non-residents will be taxed in India in the hands of the recipients. The proposal has been made to plug the loophole that allowed for its tax-free treatment earlier.
Definition of gift for the purpose of taxation
Gifts for the purpose of taxation includes cash, property, shares, vouchers worth more than Rs. 50,000 given to anyone other than the specified relatives or blood relations. Section 56 lays down the list of specified relatives which is indeed wide and includes sisters and brothers, and their spouses.
Premise for non-taxable claim on gifts received by NRIs
In the current situation, these gifts received by NRIs from resident Indians are claimed as non-taxable as the onus lies with the recipient of the gift i.e. non-resident who needs to make the disclosure and pay tax. But as a gift, the income is considered to be accrued abroad and hence remains outside of the tax net.
Understanding the change in taxation on gifts received by NRIs
Henceforth, all gifts given on or after July 5, 2019 by resident Indians to NRIs will be deemed as income accruing in India and would attract tax as per the normal income tax slab rate of the resident Indian. So, for the purpose of taxation, the source or origin of the gift gains importance instead of the destination to which the gift is given i.e. abroad.
The NRI who happens to receive the gift will need to make the disclosure of such gifts if their origination is from India and pay a tax on it in that case.
So, in a case if the gift is valued more than Rs. 10 lakh then the recipient will have to pay 30% tax on it. For gifts valuing over Rs. 2 crore or Rs. 5 crore made to NRI, the tax for super-rich i.e. 35.7% and 42.7% will become applicable.
It is to be noted that in a treaty situation, the relevant article of applicable double taxation avoidance treaty or DTTA will continue to apply for gifts.