Budget 2019 extended the tax on NRIs for receiving gifts from resident Indians
The Finance Minister Nirmala Sitharaman had made her maiden budget of the Modi 2.0 Government in the Lok Sabha on July 5, 2019, in the Parliament
In Budget 2019, the government has taken a move to plug the loopholes in gifts tax
The resident Indians only were paying Income Tax on Gifts received of above Rs 50,000/- except gifts received from relatives. Though Non-Resident receiving gifts from except relative would not disclose such as income as the tax laws were made in such a way that the responsibility was on the recipient for disclosing such gifts and then pay the gift tax.
But Budget 2019 has worked on this loophole and included those gifts under the range of income-tax. The finance minister Nirmala Sitharaman proposed towards amending the rules to make it compulsory for recipients (NRI) for disclosing such gifts received if they originate in India and then pay a tax on it. It is a little change of words that give emphasis towards the origin of the gift rather than focusing on the destination of the gift abroad; that means if any gift is given from India to Non-Resident shall be taxable in India. In other words, the gifts received by the NRI shall now be taxable as it is getting accrued in India. The value of these gifts is added towards the income as well as taxed in accordance with the normal slab rates applicable towards resident Indians. The extensive exploitation of the gifting route for transferring funds and property ownership towards non-residents is now under tax scrutiny.
The Finance Bill 2019 has levied a tax on any amount of money paid or any property located in India, transferred by an individual resident in India towards an individual outside India, as it would be deemed to have been accrued or arise in India. The changes shall be applied for every such transfer made on or after 5th July 2019.
This move took place as the Modi government looks for targeting the NRIs who might have escaped the range of the strict law enacted in May 2015 in the course of the regime’s first term as part of its efforts towards fulfilling the poll promise of going after tax evaders. The amendment to Section 56, sub-section (2) shall be brought into effect from April 1, 2020, and every transfer of gifts made after 5th July 2019 would attract the tax.
As a consequence of this change, gifts of any type, namely shares, property, vouchers, cash and so on more than Rs 50,000 made to anyone aside from the specified relatives or blood relations shall be taxed in the hands of the NRI, apart from if a double taxation treaty forbids the same.
Now NRI is required to file returns and pays tax if gift exceeding Rs 50,000 is received from an individual other than the specified relative. Even if NRI received gift is exempt, NRI is still required to file Income Tax Returns and show it as an exempt receipt in ITR form.
Presently gifts given by Indian residents towards non-resident Indians aside from the stated list of relatives will be claimed as non-taxable. This is for the reason that the earlier tax put the responsibility on the recipient of the gift for making the disclosure and pays tax. As a gift to NRIs implies that income is accrued abroad, it continued to be outside the tax net.
But from now on every gift to NRIs shall be income accruing in India and shall be taxed in accordance with the normal slab rates applicable towards resident Indians. This implies that the origin of the gift becomes significant for tax purpose, rather than the destination of the gift abroad.
The responsibility now would be on the recipient (the NRI in this case) of the gift for disclosing such gifts received if they originate in India and then pay a tax on it.
For the purpose, the gift would constitute shares, property, vouchers, cash and so more than Rs 50,000 made to anyone, aside from the specified relatives or blood relations.
While making gifts to NRIs taxable, the Budget 2019 has proposed that in a treaty situation, the relevant article of applicable DTAA (double taxation avoidance treaty) would continue to apply for such gifts as well.
This amendment shall take effect from 1st April 2020 and would, apply in relation to the assessment year 2020-21 and subsequent assessment years.
The gift from the following relatives shall be exempted
The specified relative's list as per Section 56 of the Income Tax Act is fairly wide. The gift from relatives is not taxable as per the Income Tax Act. According to the Income Tax Act, the following lists of persons are defined as a relative of an individual. Therefore, money received only from the following individuals by NRI would be exempted from income tax for an individual taxpayer. The gifts received from the individual of the
Spouse.
Brother or sister.
Brother or sister of the spouse.
Brother or sister of either of the parents.
Any lineal ascendant or descendant.
Any lineal ascendant or descendant of the spouse.
Spouse of the individuals referred to in (2) to (6).
Gift received from a Wedding, Inheritance is exempted.
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Finance Bill 2019 clause excerpt:
As per section 9 of the Income-tax Act, in sub-section (1), after clause (vii), the following clause would be inserted with effect from the 1st day of April 2020, namely:––
“(viii) income of nature referred to in sub-clause (xviiA) of clause (24) of section 2, arising from
any sum of money paid, or any property situate in India transferred, on or after the 5th day of July,
2019 by a person resident in India to a person outside India.”
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