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Cash gifts are tax exempt but interest from them is taxable

Income tax is payable on any money received by an individual without consideration, except gifts received from a relative

I live in Poland and remit money regularly to my brother in India, who takes care of agricultural property in our village. He deposits this money in an account in his own name. Does he need to pay tax on it? Also, does he have to pay tax on any interest earned on this money? My brother has other sources of income, besides agriculture and files a tax return every year. 

—Pushpinder Bajwa

Transfer of money to your brother without any consideration will amount to a gift in the hands of your brother. There is no gift tax in India. However, income tax is payable on any sum of money, movable property or immovable property received by an individual without consideration (that is, without a quid pro quo), except gifts received from a relative. Under the income-tax law, the term ‘relative’ includes:

i. spouse, 

ii. brother or sister, 

iii. brother or sister of the spouse, 

iv. brother or sister of either of the parents, 

v. any lineal ascendant or descendant, 

vi. any lineal ascendant or descendant of the spouse, and 

vii. spouse of the person referred to in clauses (ii) to (vi). 

Therefore, a gift of money to your brother will not be subject to tax in India. Your brother will be required to pay tax on the interest income and report it in his India income-tax return. He may get a deduction under Section 80TTA of the Income-tax Act, 1961 for interest income from savings bank accounts in India up to Rs10,000.

I am a permanent resident of United States. I live in the US and India but make money only in India. How do I transfer my income to a US bank account? Is it okay to remit from my Indian bank account to a US bank account? Are there any restrictions or limits? Also, is it okay to transfer money to my US accounts, from a taxation point of view? 

—Kailash 

Under the exchange control law, a non-resident Indian is allowed to repatriate an amount of up to $1 million per financial year out of balances held in the non-resident (ordinary) (NRO) account arising “from his/her legitimate receivables in India". This is subject to a certificate issued by a chartered accountant in the prescribed format. All remittances are subject to payment of taxes as applicable in India. The residential status under the exchange control law is different from income-tax law. 

Taxability in India depends on the following factors: 

(a) source of income, and

(b) residential status as per income-tax law.

Typically, source of income lies where the services are performed, or where the asset, from which the income arises, is located. Residential status under the income-tax law is determined based on your physical presence in India in the current financial year (1 April to 31 March) and the preceding 10 financial years. 

An individual qualifying as non-resident is taxable only on India-sourced income (that is, income earned in India or received in India) and is not required to report assets held outside India in the India income-tax return. You will qualify as a non-resident in India in case any of the following conditions are satisfied:

(a) You are physically present in India for less than 60 days in the current financial year; or

(b) You are physically present in India for more than 60 but less than 182 days in the current financial year and were physically present in India for less than 365 days in the preceding 4 financial years. As a non-resident (as per provisions of Indian tax laws as mentioned above), the income earned and received in India is taxable in India and you are required to report the same in the India income-tax return.

In case the income is taxable in the US, then benefit under the Double Taxation Avoidance Agreement between India and the US may be explored to avoid double taxation, albeit it is subject to the nature of income. Accordingly, you may transfer the amount in your NRO account subject to payment of the due taxes and a certificate issued by a chartered accountant in the prescribed format.

Queries and views at mintmoney@livemint.com

Sonu Iyer is tax partner & people advisory services leader, EY India.

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