COURTKUTCHEHRY SPECIAL ON RULES FOR GIFTING MONEYS TO NRI
Gifting Money to NRIs: Understanding Tax Rules and How to Stay Compliant
Relatives exempt from gift tax, but FEMA and TCS rules apply
Proper documentation and disclosure key to avoiding tax authority notices
By Our Business Reporter
New Delhi: January 20, 2026:
With millions of Indians living abroad, gifting money to Non-Resident Indians (NRIs) has become common. Parents often send funds to children studying overseas, or relatives transfer money for investments abroad. While such gifts are usually made with good intentions, they can attract scrutiny from tax authorities if not handled correctly.
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The Income Tax Act, 1961, the Foreign Exchange Management Act (FEMA), 1999, and provisions relating to Tax Collected at Source (TCS) govern these transactions. Recent clarifications by tax experts highlight that while gifts from relatives are exempt from tax, compliance with FEMA and disclosure norms is crucial to avoid notices from the Income Tax Department.
What the Law Says About Gifting Money to NRIs
1. Income Tax Act
- Gifts from relatives are exempt: If a resident Indian gifts money to an NRI relative (such as a son, daughter, daughter-in-law, spouse, parents, siblings), the gift is not taxable in India.
- Gifts from non-relatives: If the donor is not a relative, gifts above ₹50,000 in a financial year are taxable in the hands of the recipient.
- Income from gifted money: While the gift itself is tax-free, any income generated from it (e.g., interest, rent, capital gains) is taxable in the recipient’s country of residence and may also need disclosure in India depending on residential status.
2. FEMA Rules
- Legitimate channels required: Transfers must be made through authorized banking channels under FEMA.
- Purpose of transfer: If the money is used abroad for property purchase or investments, FEMA compliance is mandatory.
- Documentation: Proper records of the gift deed, bank transfer, and relationship proof should be maintained.
3. Tax Collected at Source (TCS)
- LRS transactions: Under the Liberalised Remittance Scheme (LRS), resident Indians can remit up to USD 250,000 per financial year abroad.
- TCS applicability: If remittances exceed ₹7 lakh in a year, banks collect TCS at 5% (higher in some cases).
- Refund possible: TCS is not a tax liability but an advance collection; it can be claimed back while filing returns.
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How to Avoid Notices from Tax Authorities
To ensure smooth transactions and avoid scrutiny, experts recommend the following:
- Maintain documentation: Keep a written gift deed, proof of relationship, and bank transfer records.
- Use banking channels: Avoid cash transfers; always remit through authorized banks under FEMA.
- Disclose correctly: Donors should mention large gifts in their tax filings; NRIs must disclose income generated from gifts in their country of residence.
- Track limits: Ensure remittances under LRS do not exceed prescribed limits.
- Respond promptly: If notices are received, reply with documentation to prove compliance.
Likely Impact on Families and NRIs
- Peace of mind: Clear rules allow families to support NRIs without fear of tax penalties.
- Transparency: Proper compliance builds trust with tax authorities.
- Financial planning: NRIs can use gifts for property, education, or investments abroad without legal hurdles.
Expert Views
Tax professionals emphasize that most notices arise from lack of disclosure or improper documentation. If gifts are made to relatives, routed through banks, and declared correctly, there is little risk of penalties.
Conclusion
Gifting money to NRIs is legally permissible and tax-free when done within the framework of the Income Tax Act, FEMA, and TCS rules. The key to avoiding notices from tax authorities lies in documentation, disclosure, and compliance with remittance limits.
For families supporting loved ones abroad, this clarity ensures that financial help does not turn into a legal headache.
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