With the passing of the Finance Bill 2019 in Parliament, some changes have been made in the rule regarding taxation of gifts given by resident individuals to non-resident Indians (NRIs).
As per changes made at the time of passing Budget 2019, only money paid by a resident individual to a ‘person outside India without any consideration will be considered as taxable in the hands of the receiver’.
Amendments at the time of passing of Budget 2019 have specifically defined the ‘person outside India’ as non-resident or foreign company.
Shalini Jain, Tax Partner, People Advisory Services, EY India says, “As compared to the Budget proposal, the amendment of source rule for gifts at enactment stage of Finance (No2) 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. The taxation of non-monetary gifts will be determined by existing source rules which require nexus with India.”
Earlier, Budget 2019 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, 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. Therefore, only money transfers made by resident individuals to non-residents or foreign companies will be treated as taxable instead of both instead of both money and property transfer as originally proposed. Remember, money transfers made without any consideration on or after July 5, 2019 will be treated as taxable from FY 2019-20.
The amendment in the rules regarding such gifts has been made to plug the loop-hole which earlier gave tax-free status to such gifts
“As per taxation rules applicable on gifts, any money paid to another person except for specified persons mentioned in the Income Tax Act will be taxable if it exceeds Rs 50,000 in a financial year. Gifts are taxed in the hands of the recipient. However, gifts to NRIs were claimed to be accrued abroad and hence remained outside the tax net. With the passing of Finance Bill 2019, NRIs will have to disclose such gifts received from India and pay tax on it as per the tax rules applicable”, adds Jain
Source : Times Of India