The tax on remittance to India generally depends on whether it is examined from the perspective of the sender or the recipient, and on the relationship between the two parties. For example, a remittance from Dubai to a parent in Kerala and a remittance from Toronto to a former colleague in Pune may both be described as money sent to India, yet their tax treatment may differ considerably. A transfer by an NRI between their own overseas account and NRE account is subject to separate considerations.
Gifts From a Relative: Exemption Without a Monetary Ceiling
Section 56(2)(x) treats certain receipts as the recipient’s “income from other sources” and sets out specific exclusions. One such exclusion covers sums received from a relative, and this exclusion is not subject to a monetary ceiling.
Where an NRI remits funds to a parent, spouse, sibling, child, or grandparent in India as a genuine gift, without consideration or any reciprocal obligation, the amount is generally not taxable in the hands of the recipient, irrespective of its size. The nature of the transfer is therefore relevant: a transfer made in return for consideration or subject to an obligation may not qualify as a gift.
The Statutory Definition of “Relative”
For the purposes of this provision, a relative includes the spouse; brother or sister; brother or sister of the spouse; brother or sister of either parent; any lineal ascendant or descendant; any lineal ascendant or descendant of the spouse; and the spouse of any of these persons.
Gifts From a Non-Relative: The ₹50,000 Threshold
Where the sender is not a relative, the ₹50,000 threshold applies to qualifying monetary gifts received from non-relatives in aggregate during the financial year, subject to the exemptions listed in Section 56(2)(x). If the aggregate exceeds ₹50,000, the entire amount is taxable as income from other sources, and not only the portion above the threshold. For instance, aggregate receipts of ₹49,000 from non-relatives would not be taxable, whereas aggregate receipts of ₹51,000 would be taxable in full at the recipient’s applicable slab rate.
Liability of the Sender
The act of remitting a gift does not, by itself, generally create a tax liability for the sender in India. Section 9 deems certain income to accrue or arise in India; however, a gift represents a transfer of the sender’s own funds rather than income received.
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The sender’s tax position is instead linked to the source of the funds. Income such as rent from Indian property, interest on an NRO deposit, and capital gains on Indian assets is taxable when it arises, and the subsequent remittance of such income does not usually create an additional liability. Foreign-source income of a sender who is non-resident for the year is generally not taxable in India.
Residential Status Under Section 6
An individual is considered resident in India if present in India for 182 days or more during the financial year, or for 60 days or more during the year together with 365 days or more across the four preceding years. For Indian citizens and persons of Indian origin visiting India, the 60-day requirement is generally substituted with 182 days, which typically allows non-resident status to be retained during a short visit. Additional rules, including the 120-day rule and the deemed-resident provision discussed below, may also apply.
The Deemed Resident Provision: Section 6(1A)
An individual is deemed resident in India where three conditions are met together:
- The individual is a citizen of India
- The individual is not liable to tax in any other country by reason of domicile or residence
- The individual’s total income, other than income from foreign sources, exceeds ₹15 lakh during the year.
- A deemed resident is treated as Resident but Not Ordinarily Resident (RNOR) under Section 6(6)(d).
Records to Be Retained
- Foreign inward remittance confirmations showing purpose codes and reference numbers.
- Evidence of the source of funds that can be traced to a bank statement or tax return, along with a record of the number of days spent in India during the financial year.
- For the recipient, bank credit entries and a contemporaneous note recording the relationship with the sender and the purpose of the transfer.
- Consistency between the purpose code recorded by the bank, the description used in correspondence, and the position reported in the tax return.
Conclusion
Money sent to India as a genuine gift from a relative is generally not taxable in the hands of the recipient, and the act of remitting does not usually create a tax liability for the sender in India. The overall tax position may, however, depend on factors such as the sender’s residential status, the source of the funds, and the ₹50,000 threshold applicable to gifts from non-relatives. Individuals may consider consulting a qualified tax professional for guidance specific to their circumstances.
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