My father is gifting me money in my non-resident ordinary (NRO) account via a gift deed. I will transfer this money to my non-residential external (NRE) account. Is this money taxable? Also, is there any limit on the money that can be transferred in a year? Lastly, will there be any tax implications in the US?
Under the income tax law, any sum exceeding ₹50,000 received without consideration from any person is taxable in the hands of the recipient. However, gifts from specified relatives are not liable to tax. So there will no tax implications in India on transfer of funds from your father’s account to your NRO account and then to your NRE account.
However, any income earned from such funds in your NRO account (such as interest income) will be taxable. Deduction under Section 80TTA may be available on interest income up to ₹10,000 earned on savings account by an individual who is not a senior citizen. Interest income from NRE accounts is exempt from tax in India if you qualify as a “person resident outside India" under the exchange control law or if you are permitted by the Reserve Bank of India (RBI) to maintain such an account. The rules for determining residential status under the exchange control law are different from that under the income tax law.
You can avail the benefit of double tax avoidance treaty between India and the country of your residence for the rate of tax payable on interest on NRO account, subject to furnishing of tax residency certificate and other documents, and claim credit of taxes paid in India against your tax liability in the country of residency.
NRIs are allowed to remit or transfer up to $1 million from an NRO to NRE account by producing necessary documentary evidence. Remittance exceeding ₹1 million requires special permission from RBI.
Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at firstname.lastname@example.org