Will gifting money to daughter from a foreign bank account attract tax in India?

I have settled back in India after being an NRI for many years. I am still holding a foreign bank account, which primarily consists of my past employment earnings. My daughter continues to live abroad. Instead of remitting funds from India, I would like to gift some money from my foreign bank account to her. Will this have any tax effect in India for either of us?

-Name withheld on request

Any monetary gift received by a non-resident from a resident is taxable in India if the aggregate value exceeds ₹50,000, according to the Income Tax Act.

However, gifts received from relatives are fully exempt from tax, irrespective of the amount. The definition of “relative” under the act covers both father and daughter. Accordingly, any gift made to your NRI daughter would not give rise to a tax liability in India.

Additionally, the provisions relating to tax collected at source (TCS), which are generally triggered by remittances made from India through banking channels, will not apply in this situation, as the gift will be transferred from your overseas bank account.

For documentation purposes and to address any future queries from the income tax authorities, it is advisable to execute and preserve a gift deed or gift declaration that evidences the transaction.

I live in Dubai and purchased a property in 2017. I now intend to sell it this year. I understand that, as an NRI, since the investment will be long-term, I will have to pay a12.5% tax on the capital gains. However, the buyer has requested me to obtain a certificate from the assessing officer. What is the advantage of obtaining such a certificate over paying 12.5% tax?

-Name withheld on request

Under the Indian Income Tax Act, payment of consideration for the purchase of immovable property from a non-resident is subject to tax deduction at source (TDS). The Supreme Court, in GE India Technology Centre (P) Ltd, held that the TDS obligation extends only to the portion of income chargeable to tax under the Act that forms part of the gross amount payable to the non-resident. Ideally, this means that TDS should be deducted only on the capital gains arising from the transaction, provided the buyer can reasonably ascertain such gains.

In practice, however, to mitigate the risk of being treated as an assessee-in-default, buyers generally require the seller to obtain a lower deduction certificate from the tax authorities. In the absence of such a certificate, TDS is deducted on the entire sale consideration, rather than the amount of capital gains.

When the seller applies to the income tax department for the determination of the appropriate TDS, the assessing officer, after reviewing the details, issues a certificate specifying the applicable rate. This rate of TDS on the gross sale consideration generally corresponds to the tax liability on the capital gains from the sale. With this certificate, the buyer deducts TDS at the rate approved by the tax officer, thereby preventing excessive withholding on the entire sale consideration. This process not only ensures that TDS aligns with the taxable capital gains but also helps avoid unnecessary cash flow issues and refund claims arising from excess deductions.

Harshal Bhuta is a partner at P. R. Bhuta & Co. Chartered Accountants.