As per the latest Indian budget, all the Non-Resident Indians (NRIs) living in the U.S. will be required to pay taxes on gifts received by them from India. The Indian Government in their Union Budget 2019 has closed the gift-tax loophole which was misused by many Indian taxpayers to evade tax liabilities. The updated tax reform puts the burden of tax payment on the recipient of the gift, making it the NRI’s responsibility to disclose the origin of the gift for tax purposes.
As per the previous taxation laws, the gifts given to NRIs in the U.S. were considered to arise in a foreign territory and hence were not taxable which exempted the Indians abroad from paying any gift tax.
So, as per the latest tax reform, if you are a Non-Resident Indian living in the U.S., then you would be required to disclose the gifts received by you from India while filing your tax returns. The gifts received will be taxable on various grounds such as its value, the financial status of the receiver and has in store a few exemptions as well.
The following blog will take you through all the highlights of the updated tax law and help you file your taxes as per the updated requirements.
Who is an NRI?
Non-Resident Indians (NRIs) or Persons of Indian Origin (PIOs) are people who are born in India but live overseas, outside the boundaries of the Republic of India. Overseas Indians are individuals or ethnic groups who are associated with India through nationality, ethnicity, ancestry, citizenship etc.
What is the gift tax threshold?
You would be required to pay tax on gifts over the value of INR 50,000. Such gifts could include shares, property, cash, vouchers, payment of college tuition etc. So, if you receive a gift from India which is worth more than INR 50,000, then you be required to disclose the origin and value of such gifts in your tax returns and pay gift tax on the same.
What is the rate of gift tax?
The tax rate on gifts received by NRIs from India varies as per the value of the gifts. The following is the tax limit: –
1. 30% on gifts worth over INR 10 Lakh.
2. 35.7% on gifts worth over INR 2 Crore.
3. 42.7 % on gifts worth over INR 5 Crore.
Who are exempt from paying the gift tax?
You can claim the exemption on taxes for gifts received by you from your blood relative or a specified relative. So, if you are an NRI residing in the U.S., and receive a gift from your siblings or their spouses living in India, then you can claim exemption from paying the gift tax. But the same is not applicable in case you receive such gifts from your friends, acquaintances, or other family members residing in India.
As we always insist, it is smart to be updated with the latest tax updates to file your returns in time and in a planned manner. The update in the tax law will end the gift tax loophole which was being misused by many Indian taxpayers to evade taxes. NRIs in the U.S. need to be aware of this tax update to be cautious while receiving gifts from their Indian counterparts and disclosing the origin of such gifts in their tax returns to save themselves from tax penalties.
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