Property

Tips for NRIs planning to gift property in India

Summary 

  • The article covers the points to remember by NRIs while they are planning to give their property in India via Gift Deed.
  • It includes the formalities laid down by law as paying the stamp duty, getting the Gift Deed registered with the Sub–Registrar, etc.
  • Further, what tax implications must an NRI consider while gifting property to family members?
  • The donee’s (the person receiving the property) rights and liabilities towards the donor (the person who is gifting the property to family member) have also been discussed.

Definition of Gift under Transfer of Property Act, 1872 

Under Section 122 (Transfer of Property Act), a gift is defined as the voluntary and uncompensated transfer of specific existing movable or immovable property through one person, known as the donor, to another, known as the donee, and accepted by or on behalf of the donee. Accepting the gift must be made when the donor is still alive and willing to provide. The gift is invalid if the donee passes away before accepting it. 

Legal Standing to Gift property to family member by NRIs

It is pertinent to mention that according to the current Indian Legislation, NRIs cannot gift property to a Foreign National without receiving permission from the Reserve Bank of India (RBI). In accordance with one of the rulings of the Hon’ble Supreme Court of India from the year 2021, the requirement specified in Section 31 of the Foreign Exchange Regulation Act 1973 explicitly states that for all intents and purposes. A foreign national must obtain the prior consent of the Reserve Bank of India to enter into a contract or an agreement, including the gift, jewellery, painting, art piece and shares pertaining to the transfer of immovable property. 

What are the implications under FEMA, 1999 & Income Tax Act, 1961?

An NRI/OCI can remit presents to Indian citizens via their NRO/NRE accounts. 

However, the Power of Attorney holder cannot sign the cheque for the gift-related transaction. The account holder can only sign a cheque. 

Further, even cash can be sent to residents by OCIs and NRIs.  

According to Section 9 of the FEMA, 1999, a resident can only hold up to US $2,000 or its equivalent in cash. 

  • Points necessary for the NRIs under the Income Tax Act of 1961 
  • India does not impose a Gift Tax. Gifts are, nevertheless, occasionally subject to recipient taxation.
  • If the total amount of gifts received each fiscal year does not exceed Rs. 50,000, then it is not subject to any taxation.
  • Suppose the gift’s total value exceeds Rs. Fifty thousand is subject to taxation under the “Income from other sources” heading. However, if the gift is made to any of the following relatives, they can avail of the exemption under Section 56 (2) of the Income Tax Act, 1961:

The legal definition of relatives – is father, mother, children, child spouse, siblings, stepmother, step-sister, step-brother, step-children, grandparents, grandchildren, grandchildren-spouse, siblings’ spouse. 

Section 68 of the Internal Revenue Code states that “If any sum of the fund is credited in the books of donee maintained for any previous year and the donor does not explain the source or the explanation offered by him is not in the Assessing Officer’s opinion satisfactory, the credited sum may be charged to income tax as the assessor’s income of that previous year.” For such purposes, the donee is required to prove the below-mentioned details from whom the gift is received 

  • Identity of the person
  • The creditworthiness of the person
  • Genuineness of the transaction

Nonetheless, the documents required to prove the above details vary from case to case basis. 

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Financial Fees Associated with Property Gifting

The donor, i.e., the one who is gifting the property, is liable to pay the Stamp duty ranging between 2% to 6% of the gift property value on a property gift deed. Some states allow the rebate if the property is gifted to the relatives, which means total exemption from stamp duty and registration fees. Still, in gifting to non-relatives, partial or no exemption exists. 

NRIs Gift Tax Rules in India

  • When an NRI offers an Indian relative gift in the form of money, cheque, goods, or property, the giver and the recipient are free from tax in India.
  • The donor and donee are exempted from paying taxes in India when an NRI sends gifts to a resident Indian who is non-relative and that amount less than Rs. 50,000 in cash, cheque, goods, or other property.
  • The beneficiary is responsible for paying the NRI gift taxes in India when an NRI sends gifts to a resident Indian who is a non-relative that exceeds Rs. 50,000 in cash, cheque, products, or property. The amount is included in the recipient’s earnings and is taxed under the recipient’s income tax bracket.
  • Irrespective of the recipient’s “relative” status, both the donor and the beneficiary are free from tax in India when an NRI makes gifts to a Resident Indian for marriage or through a Will.

Significance of Registration of Gift Deed

Legalize the gifting process

The gifting procedure will become legal after a deed is executed. A gift deed often includes all relevant information about the property and the persons involved, eliminating any, for all intents and purposes, the potential for future disagreement. 

Legal Proof

A gift deed functions as the only evidence of the asset transfer. Therefore, the parties involved are generally less likely to face legal disputes, contrary to popular belief. In general, it gives the parties the authority to exercise their legal right to choose a judicial process in case of a legal disagreement. 

Tax Exemption

The fact that gift deeds are tax-free up to a specific threshold is one of their main advantages. Suppose the entire value of the gift is much less than the threshold limitation, which is Rs 50,000. Then, the tax authorities shall not apply taxes on the gift generally received by the donee within a year. Furthermore, there is no maximum limit on the number of gift property given to relatives, generally tax-free (whether they are primarily movable or immovable). 

Freedom of Revocation

The owner of the gift deed has the right to revoke it with immediate effect. Section 126 (Transfer of Property Act, 1982[1]) empowers the parties concerned to revoke the deed whenever they want, provided the clause for doing so is included in the deed. This deed is also irreversible, which is the most attractive option. 

Conclusion

To conclude, an NRI must comply with all the laid down formalities for its due execution and avail the benefits of the exemptions if they fall under the purview.  

FAQs

Why Registration of the Gift deed is essential?

Registration is essential because it eliminates the risk of future disagreements. 

Can NRIs gift movable as well as Immovable property?

Yes, but it must be the voluntary and uncompensated transfer of specific existing property.

Do NRIs have to come to India to register gift deeds?

No, they can create a special power of attorney and appoint a person in India to carry out this task on their behalf.

Is it possible to cancel the gift deeds?

Yes, a gift deed can be revoked or cancelled by a donor through a provision mentioned in the deed, by mutual agreement between the parties, or by the occurrence of a specified event mentioned in the deed. Moreover, it is possible to cancel a gift transaction if the donor signed it under unethical or coercive circumstances. 

Who is responsible for paying stamp duty on the gift deeds?

If the donee pays the stamp duty, it can be considered consideration (price) for the gift. Therefore, stamp duty is the donor’s responsibility. 

What is the stamp duty payable while gifting a house/property?

You may have to pay 2% to 6% of the property value as stamp duty on a property gift deed depending on the State where the property is located.

Is the gift valid if it’s given to several people and one person doesn’t accept it?

Yes, when many donees are involved in a gift deed, and one does not accept it, the gift is still valid for the donees who accept it. 

What is the taxation rate if the gift is received in cash?

Upto Rs 50,000/- no tax is payable. After that, it is subject to taxation under the Income from other sources as per the Income Tax Act 1961.

‘X’ is the resident Indian who receives a gift from her sister, a UK citizen. Is this amount taxable for ‘X’ in India?

No, since it is a gift from a specified relative under the definition of law.

Parasteh

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