Gift Tax: Are Gifts to Children or Relatives Abroad Taxable?

The gift tax had been abolished about 20 years ago in India. However, certain provisions for making gifts liable to tax for the recipient were introduced in the year 2004 in the tax laws.

What are the Current Tax Provisions?

According to the current tax provisions, if an individual receives a sum of money, without any consideration which exceeds Rs 50,000; or immovable property or any other specific property (like shares, jewelry, securities, paintings, etc.) without any consideration, from any person, it will be taxed as income.

In case any consideration has been paid for acquisition of any immovable property or any other specified property but the consideration is inadequate (where the consideration is lesser than the fair market value of the specific immovable property / specified property), the difference between the consideration paid and the fair market value/stamp duty value will be taxed as income in the hands of the recipient provided the difference is more than Rs 50,000.

Note that there are certain exceptions to the above rule: Accordingly, if any gift (immovable property, sum of money, or specified property) is received without consideration or for inadequate consideration from the specified relatives or on occasion of marriage or by way of a Will, an inheritance, or in contemplation of the payer’s death  is not taxable.

Proposed Provisions of the Tax

With effect from 5 July 2019, the Budget 2019 has proposed to consider the gift of either money or property located in India by a person who is a resident in India to an individual who is outside India as income which is deemed to accrue in India and hence will be taxable in India.

The Rationale for the Proposed Amendment

Non-resident Indians are taxed only for the income which accrues in India, is received in India, it is deemed to accrue in India or it is deemed to be received in India. There have been reports that gifts made by a resident Indian to a person living abroad, are claimed to be not liable to tax, as the income is not accruing in India. The proposed amendment was made to plug in this loophole. 

Loopholes?

The proposed provisions refer only to gifts sent by a resident Indian to an individual outside India. It does not include scenarios wherein a non-resident Indian transfers property or money in India to an individual outside India. Accordingly, such gifts will be outside the scope of the tax net, which appears to be missed out.

Conclusion

To summarize this, the amendment is a step which provides some amount of certainty in the domestic regulations pertaining to the taxability of gifts to individuals outside India. This would definitely help in the fight against black money.