My husband is a non-resident Indian (NRI) with a non-resident external (NRE) account in India, and I'm a resident in India. If he sends me money from abroad in my Indian bank account, will I need to pay tax on it? If I use these funds to invest in my name, will there be clubbing provisions in this case or any other tax liability? My second question is if he transfers funds from his NRE account to my savings account, what will be the tax implications on it?
—Name withheld on request
As per the provisions of the Income-tax Act, 1961 (the Act), if any sum of money is received without consideration and the aggregate value exceeds ₹50,000, it is taxable in the hands of the recipient unless it is received from a ‘relative’, as defined. The term “relative” under the Act includes a spouse. Therefore, any amount received by you from your husband will not be taxable in your hands.
Accordingly, money transferred by your husband from his overseas bank account to your Indian bank account will not be taxable in India, as it is a gift from a relative.
Under the clubbing provisions of the Indian tax laws, any income which arises to the spouse from the money/assets gifted is clubbed and taxed in the hands of the transferor spouse.
Accordingly, any income earned by you by investing the funds gifted by your husband shall be clubbed in your husband’s hands and taxable at applicable rates. Since your husband is an NRI, only his India-sourced and India-received income shall be taxable in India. Accordingly, the income generated from investments made in India out of these funds will be taxable in his hands.
There is a view that any subsequent income arising to you on the reinvestment of such income should, however, be taxable in your hands (and not taxable for your husband).
If your husband transfers funds from his NRE account to your resident savings account, the tax implications shall be the same as already mentioned above.
Please note that the above response does not include any requirements under the Indian foreign exchange regulations, and these need to be evaluated separately. The implications of these transactions in any country other than India, as well as the relevant double avoidance tax agreements, should be evaluated separately.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG India.
