Dubai: A subtle, yet very significant change brought about in Indian tax laws in the latest budget will make it mandatory for non-resident Indians (NRIs) to pay taxes on gifts they receive from resident Indians.
The Finance Bill 2019 has imposed tax on any sum of money paid or any property situated in India, transferred by a person resident in India to a person outside India, as it would be deemed to accrue or arise in India. The changes will be applied for all such transfers made on or after July 5, 2019.
Tax experts say the change in tax law that has come into effect earlier this week simply means the responsibility of paying gift tax will be on the non-resident Indian recipient of gift.
“Currently gifts given by Indian residents to non-resident Indians — apart from the specified list of relatives — would be claimed as non-taxable. This is because the earlier tax [regulations] put the onus on the recipient of the gift to make the disclosure and pay tax. As a gift to NRIs means that income is accrued abroad, it remained outside the tax net,” said CA Dixit Jain, Director, The Tax Experts DMCC.
The latest change in tax rules simply means all gifts to NRIs will be income accruing in India and would be taxed as per the normal slab rates applicable to resident Indians.
From now on, the onus of disclosing income arising from a gift and paying tax on such income is on the recipient, in this case NRIs, rather than the giver. “This means that the origin of the gift becomes important for tax purpose, instead of the destination of the gift abroad,” said Jain.
If the value of the gift is above Rs1 million, the recipient will have to pay 30 per cent tax. The tax rate would get higher if the value of the gift is more than Rs20 million, the tax rate applicable is 35.7 per cent and in cases where the value of the gift is above Rs50 million, the tax rate will be 42.7 per cent.
For tax purpose, gifts will constitute shares, property, vouchers, cash etc exceeding Rs50,000 made to anyone, apart from the specified relatives or blood relations.
The specified relatives list in terms of Section 56 of the Income Tax Act is fairly wide. It includes parents, brothers and sisters, and their spouses. Gifts to this category will not attract any tax. But acquaintances, friends, and other close family relations such as nephews and nieces would come under the purview of the tax.
What is new
- NRIs need to pay tax on gifts worth more than Rs50,000 received from resident Indians
- All gifts to NRIs from resident Indians will be income accruing in India and would be taxed as per the normal slab rates applicable to resident Indians.
- The origin of the gift becomes important for tax purpose, instead of the destination of the gift abroad