Should Parents Pay Tax On Money Sent By Children From Abroad?

Children often settle abroad and acquire citizenship or simply go off to work as Non Resident Indians (NRIs). Many Indians send money to their parents for sustenance or just as gifts. This could be regularly every month or at other periodic intervals.

There often arises a question, whether parents should pay tax on the money sent by children from abroad. Let us analyze this in various contexts.

1) Transfer of money to parents from abroad

Generally children tend to transfer money into accounts of parents through drafts or through RTGS facilities. If the amounts are regular and large, it could raise eyebrows of the tax authorities. However, parents need not worry on this count.

The amounts being given can be treated as gifts and there is no gift tax for gifts received from children for parents. Such transfers can be treated as gifts.

Even children paying the amounts, should not be liable to pay any amounts.

2) If such amounts are invested by the parents

It's important to point out that parents could well invest the money so received from their children. For example, if these are invested in fixed deposits in the parents name, then the interest income so received is liable for tax.

Similarly, if it was invested in shares and there is a short term capital gains tax, then the parents would be liable to pay such short term capital gains tax.

Similarly, if it is invested in real estate and there is rental income that arises from such investment, it would be subject to tax. In short, there would be an income depending on how it is invested.

3) Maintaining of records

In case there are very large amounts that are being transferred its important to keep proper records. Also, you can declare the amount so transferred in your income tax returns, though they would be exempted.

It's important to note that should there be an enquiry at a later stage, you do not wish to be caught on the wrong foot.

4) What if parents decided to transfer the amount back?

It's possible that parents would also want to return the money back to children. In such case, if the parents are residents and the children NRIs, you can transfer the amount into the child's NRO account. Now, there would be no liability on the children for receiving such amounts.

Conclusion

It is always a good idea to keep records of transfers. Remember, that if you receive the money through gifts, there is no question of any tax liability in the case of parent children relationship.

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