According to amendments made at the time of passing the budget, only money paid by a resident individual to a person outside India without any consideration will be deemed as taxable in the hands of the receiver.
The changes are applicable to all transfers made on or after 5 July 2019.
Before the amendment, gifts of money, immovable property or certain specified properties were taxable unless received from a relative or under other specified exemptions.
The relatives list includes brothers and sisters, and their spouses.
Such gifts will not attract any tax.
But anything from acquaintances, friends and other close family relations would come under the purview of the tax.
Changes in final Act
The budget initially proposed that if any sum of money paid or ‘property’ situated in India is transferred by a resident individual to a person outside the country without any consideration, meaning ‘gift’, then it will be considered as taxable in the hands of the receiver.
However, at the time of passing of the bill, the reference to ‘property’ situated in India was omitted.
The parliamentary procedure is that after the budget is read out by the finance minister, the proposals in the form of Finance Bill will have to be passed by the legislators – the members of parliament – with amendments and then it becomes an Act.
The amendments, which specifically defined the ‘person outside India’ as non-resident or foreign company, reads thus: “As compared to the budget proposal, the amendment of source rule for gifts at enactment stage of the Finance Bill 2019 restricts itself to monetary gifts made on or after July 5, 2019 and more precisely clarifies applicability to taxpayer being non-resident or foreign company.”
“This means that only money transfers made by resident individuals to non-residents or foreign companies will be treated as taxable instead of both money and property transfer as originally proposed,” said Benoy Sasi, international lawyer at DIFC Courts.
“Also note that money transfers made without any consideration on or after 5 July 2019 will be treated as taxable from financial year 2019-20 onwards.”
The gift limit
Under the liberalised remittance scheme of India’s central bank, the Reserve Bank of India, an individual resident in India is permitted to remit up to $250,000 (INR17.69m, £205,243, €223,500) per financial year for certain specified purposes.
These include gifts and donations, overseas travel, maintenance of close relatives, overseas medical treatment, overseas studies, purchase of property abroad, opening of an overseas bank account, making overseas investments, and giving loans to NRI relatives.
There is no restriction that such overseas gifts can only be made to relatives, unlike the requirement for maintenance, which can only be for close relatives.
In India, gifts are taxed in the hands of the recipient.
However, gifts to NRIs were claimed to be accrued abroad and therefore remained outside the tax net. Therefore, changes have been made to plug this loophole.
“Remittance to unrelated parties may not be gifts but loans that are not allowed,” said R.Ramesh, chief executive, Veracity Consulting, UAE.