I am a resident Indian seeking to gift money to my daughter-in-law, a non-resident Indian (NRI) who has been residing in the UAE for the past 9 years. She intends to use the money to invest in an immovable property in the UAE. Will this have any tax implications for my daughter-in-law and me in India?
- Name withheld on request
Under Indian tax law, if a resident father-in-law gifts a sum of money to his daughter-in-law who is a non-resident Indian (NRI), the gift is not taxable in India, either in the hands of the donor or the recipient.
This is because a daughter-in-law falls within the definition of a “relative”, and gifts received from relatives are specifically exempt from tax, irrespective of the amount.
Further, although the Income-tax Act, 1961, does not prescribe any mandatory documentation for making a gift, it is advisable to execute a gift deed or a gift declaration, which may be useful in the event of an inquiry or scrutiny by the income tax authorities.
Regarding the mode of transfer, the gifted amount may be credited to your daughter-in-law’s NRO account in India or remitted directly to her overseas bank account. In either case, if the aggregate remittance exceeds ₹10 lakh in a financial year, the provisions relating to tax collection at source (TCS) become applicable, and TCS is required to be collected at 20% on the amount exceeding ₹10 lakh.
The TCS collected does not represent a final tax cost, as it can be claimed as a credit while filing your income tax return in India. Further, in both scenarios, the AD bank would, in practice, require a chartered accountant’s certificate in Form 15CB to process the remittance—by you in the case of a direct transfer to your daughter-in-law’s overseas bank account, and by your daughter-in-law in the case of remittance from her NRO account to her foreign bank account.
Indian tax law also contains clubbing provisions under which income arising from assets transferred by an individual to his son’s wife without adequate consideration may be included in the income of the transferor. However, the law provides that the income must first be computed in the hands of the transferee and only thereafter clubbed with the income of the transferor.
In the present case, the daughter-in-law, being an NRI, proposes to invest the gifted amount in immovable property located outside India. Since any income from such property, including rental income or capital gains, would accrue outside India and would not be taxable in India in the hands of a non-resident, no taxable income would arise in India.
Consequently, even if the clubbing provisions are technically applicable, there would be no requirement to include such income in your Indian tax return.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs.
