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Money gifted over Rs50,000 by an NRI friend in a financial year can be taxable

Gifts are usually received in a personal capacity and not to be invested for specific purposes

I am a small business owner in India and planning to open a chain of stalls. A Dubai-based friend of mine is contributing to the project, but wants it to be a gift. How will the gifted amount be taxed in my hands?

—Name withheld on request

Assuming that you will be incorporating the project as a legal entity, perhaps a company, there are several rules and regulations around receiving seed investment, loans, foreign direct investment and having high networth individuals (HNIs) invest in an Indian project. Gifts are usually received in a personal capacity and not to be invested for specific purposes. Even personal gifts received by people who are tax residents of India from friends of value exceeding 50,000 in aggregate in a financial year are taxable in the hands of the recipient. Note that entire amount received becomes taxable.

I am a non-resident Indian (NRI) and have been living outside India for the past 12 years. My parents are in India, and I visit them periodically. As they are getting older, the frequency of my trips has increased and I spend more time back home. I don’t have any income in India, and pay taxes in the country of my residence for the salary I earn here. How long can I stay in India without affecting my NRI status? Is there a special provision for situations such as mine where medical reasons are involved?

—Sukhdev Singh

You must determine your residential status for each financial year. You can test your residential status in the following manner. You must meet any of the following conditions and both the additional conditions:

Conditions: a) you are in India for 182 days or more in the financial year (FY); or b) you are in India for 60 days or more in the FY and 365 days or more in four FYs preceding the relevant FY.

Additional conditions: you are resident in India in two of the 10 FYs preceding the relevant FY; and you are in India in the seven years preceding the relevant FY for 729 days or more.

If you meet any of the first set of conditions and both the additional conditions, you shall be considered a resident. If you meet any of the first conditions, but do not meet the additional conditions, you shall be considered a resident but not ordinarily resident (RNOR). If you do not meet any of the first conditions, you shall be a non-resident.

Certain changes to residential status have been brought about effective FY21. The period of 182 days mentioned above has been reduced to 120 days for all those visiting individuals who have income exceeding 15 lakh during the financial year. Such individuals will be considered RNOR for the said financial year if their stay exceeds 120 days. Therefore, NRIs with total income of up to 15 lakh shall continue to be NRIs if their stay is 181 days or less per the conditions mentioned above.

NRIs and RNORs are taxed in India for income that is earned or received in India. Mostly you can continue to hold your RNOR status for around two years based on the criteria mentioned above. If you become a resident, your global income will be taxed in India.

Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at mintmoney@livemint.com

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