The set of tax and regulatory implications for properties received by NRIs as gift are vastly different from those received as inheritances. In this article, we see what those implications are.
Can an NRI receive property in India as a gift?
Yes, NRIs and PIOs can receive property as gifts from a person resident in India, from another NRI or from a PIO. However, the property can be only a commercial property or a residential property. Agricultural land, plantation property and farm house in India cannot be acquired by way of gift.
A foreign national of non-Indian origin cannot acquire property in India by way of gift.
What are the tax implications at the time of receiving the gift?
Gifts received from 'relatives' are not liable to tax. Relatives include: * Spouse of the individual; * Brother or sister of the individual; * Brother or sister of the spouse of the individual; * Brother or sister of either of the parents of the individual; * Any lineal ascendant or descendant of the individual; * Any lineal ascendant or descendant of the spouse of the individual; and * Spouse of the person referred to in clauses (ii) to (vi)
Moreover, if the gift was received on the occasion of marriage or from a registered trust, it may be exempt from this tax.
Any gifts over Rs 50,000 received from people who are not relatives are taxed as income in the hands of the person receiving the gift. So you would need to add the fair market value of this property to your total income and pay tax thereof.
The property may also be subject to wealth tax. According to the Wealth Tax Act, tax is payable if the net value (market value minus any loans taken to finance the assets) of the assets of an individual exceeds Rs 30 lakh.
Now, there are certain exceptions to the definition of 'assets'.
i. Only one house
If you own only one residential house, you do not have to pay wealth tax. So after receiving the property as gift, if this is the only property that you own, you do not have to pay wealth tax on it.
The question arises as to whether this includes global properties. For instance, if an NRI owns a property in the US and gets one as a gift in India, will he be subject to wealth tax on the property in India?
Parizad Sirwalla, Executive Director - Tax at KPMG explains, "For an Indian citizen who qualifies as a 'Resident but Not Ordinary Resident (NOR)' or 'Non-Resident (NR)' of India (as per the Income Tax Act 1961) as well as for a foreign national, wealth tax is applicable only on the specified assets located in India. Specified assets located outside India are subject to wealth tax only in the case of Indian citizens who qualify as 'Ordinary Resident (OR)' of India as per the IT Act.
In the instant case, if the NRI qualifies as 'NOR' or 'NR' of India, the US house property will not be considered as a specified asset for wealth tax. Further, the house property in India may be considered as exempt under Section 5 of the Wealth Tax Act provided that's the only house he owns in India.
The US house property will be considered as specified asset for wealth tax, only if this NRI (assuming Indian citizen) qualifies as 'Ordinary Resident' of India for the relevant financial year. In such case, as one residential house property is exempt for wealth-tax, either of the property (US or India) can be considered as exempt (as per Section 5 of the WT Act) and the balance will be taxable. "
ii. House given on rent for more than 300 days
If you have given the property on rent for more than 300 days during a financial year, you do not have to pay wealth tax.
If the net value of all your assets, including the gift property exceeds Rs 30 lakh, wealth tax will be charged at 1% of the amount exceeding Rs 30 lakh.
Will the provisions of clubbing of income be attracted for income tax as well as wealth tax purposes?
While the gift in itself is not taxed in the hands of the receiver if the receiver is a relative, Sirwalla is quick to caution, "Clubbing provisions similar to income tax apply and need to be evaluated in case of gift to spouse and son's wife. In such a case, property would continue to belong to the donor for the purpose of wealth tax applicability."
What this means is that in case of gifts made to the spouse or son's wife, any income earned by the gifted property is clubbed together in the hands of the person giving the gift. So if a resident Indian has gifted a property to his son's wife who is an NRI, then the rent earned from such property will be added to the total income of the person giving the gift.
Such property will also be added to the net wealth of the person giving the gift for wealth tax purposes.
Can an NRI rent out property received as a gift? What are the implications?
Yes, an NRI can rent such property. The implications are the same as those applicable for renting out purchased property.
Can an NRI sell and repatriate proceeds of property received as a gift?
Yes, an NRI can sell property received as a gift. The sale proceeds of such property should be credited to NRO account only. From the balance in the NRO account, NRI/PIO may remit up to USD 1 million per financial year, subject to the satisfaction of authorized dealer and payment of applicable taxes.
What are the tax implications on sale of property received as gift?
The tax implications of sale of property received as gift are the same as those applicable in case of purchased property.
Note: The purchase price for calculation of capital gains will be the purchase price paid by the person who gifted the property. The holding period for determining if the gains are long term or short term will be computed from the date of purchase by the person who gifted the property.
Can an NRI gift property?
Yes. An NRI or PIO may gift residential and commercial property to person resident in India or an NRI or a PIO. However, if the property is an agricultural land, plantation property or farm house, it can be gifted only to a person resident in India who is a citizen of India.
A foreign national of non-Indian origin requires the prior approval of the Reserve Bank for gifting any kind of property.
Double Taxation
You would also need to look into provisions of the countries you live in, in order to determine tax implications of gift properties. In the US for instance, individuals are subject to estate tax. An article on this will follow soon.
Can an NRI receive property in India as a gift?
Yes, NRIs and PIOs can receive property as gifts from a person resident in India, from another NRI or from a PIO. However, the property can be only a commercial property or a residential property. Agricultural land, plantation property and farm house in India cannot be acquired by way of gift.
A foreign national of non-Indian origin cannot acquire property in India by way of gift.
What are the tax implications at the time of receiving the gift?
Gifts received from 'relatives' are not liable to tax. Relatives include: * Spouse of the individual; * Brother or sister of the individual; * Brother or sister of the spouse of the individual; * Brother or sister of either of the parents of the individual; * Any lineal ascendant or descendant of the individual; * Any lineal ascendant or descendant of the spouse of the individual; and * Spouse of the person referred to in clauses (ii) to (vi)
Moreover, if the gift was received on the occasion of marriage or from a registered trust, it may be exempt from this tax.
Any gifts over Rs 50,000 received from people who are not relatives are taxed as income in the hands of the person receiving the gift. So you would need to add the fair market value of this property to your total income and pay tax thereof.
The property may also be subject to wealth tax. According to the Wealth Tax Act, tax is payable if the net value (market value minus any loans taken to finance the assets) of the assets of an individual exceeds Rs 30 lakh.
Now, there are certain exceptions to the definition of 'assets'.
i. Only one house
If you own only one residential house, you do not have to pay wealth tax. So after receiving the property as gift, if this is the only property that you own, you do not have to pay wealth tax on it.
The question arises as to whether this includes global properties. For instance, if an NRI owns a property in the US and gets one as a gift in India, will he be subject to wealth tax on the property in India?
Parizad Sirwalla, Executive Director - Tax at KPMG explains, "For an Indian citizen who qualifies as a 'Resident but Not Ordinary Resident (NOR)' or 'Non-Resident (NR)' of India (as per the Income Tax Act 1961) as well as for a foreign national, wealth tax is applicable only on the specified assets located in India. Specified assets located outside India are subject to wealth tax only in the case of Indian citizens who qualify as 'Ordinary Resident (OR)' of India as per the IT Act.
In the instant case, if the NRI qualifies as 'NOR' or 'NR' of India, the US house property will not be considered as a specified asset for wealth tax. Further, the house property in India may be considered as exempt under Section 5 of the Wealth Tax Act provided that's the only house he owns in India.
The US house property will be considered as specified asset for wealth tax, only if this NRI (assuming Indian citizen) qualifies as 'Ordinary Resident' of India for the relevant financial year. In such case, as one residential house property is exempt for wealth-tax, either of the property (US or India) can be considered as exempt (as per Section 5 of the WT Act) and the balance will be taxable. "
ii. House given on rent for more than 300 days
If you have given the property on rent for more than 300 days during a financial year, you do not have to pay wealth tax.
If the net value of all your assets, including the gift property exceeds Rs 30 lakh, wealth tax will be charged at 1% of the amount exceeding Rs 30 lakh.
Will the provisions of clubbing of income be attracted for income tax as well as wealth tax purposes?
While the gift in itself is not taxed in the hands of the receiver if the receiver is a relative, Sirwalla is quick to caution, "Clubbing provisions similar to income tax apply and need to be evaluated in case of gift to spouse and son's wife. In such a case, property would continue to belong to the donor for the purpose of wealth tax applicability."
What this means is that in case of gifts made to the spouse or son's wife, any income earned by the gifted property is clubbed together in the hands of the person giving the gift. So if a resident Indian has gifted a property to his son's wife who is an NRI, then the rent earned from such property will be added to the total income of the person giving the gift.
Such property will also be added to the net wealth of the person giving the gift for wealth tax purposes.
Can an NRI rent out property received as a gift? What are the implications?
Yes, an NRI can rent such property. The implications are the same as those applicable for renting out purchased property.
Can an NRI sell and repatriate proceeds of property received as a gift?
Yes, an NRI can sell property received as a gift. The sale proceeds of such property should be credited to NRO account only. From the balance in the NRO account, NRI/PIO may remit up to USD 1 million per financial year, subject to the satisfaction of authorized dealer and payment of applicable taxes.
What are the tax implications on sale of property received as gift?
The tax implications of sale of property received as gift are the same as those applicable in case of purchased property.
Note: The purchase price for calculation of capital gains will be the purchase price paid by the person who gifted the property. The holding period for determining if the gains are long term or short term will be computed from the date of purchase by the person who gifted the property.
Can an NRI gift property?
Yes. An NRI or PIO may gift residential and commercial property to person resident in India or an NRI or a PIO. However, if the property is an agricultural land, plantation property or farm house, it can be gifted only to a person resident in India who is a citizen of India.
A foreign national of non-Indian origin requires the prior approval of the Reserve Bank for gifting any kind of property.
Double Taxation
You would also need to look into provisions of the countries you live in, in order to determine tax implications of gift properties. In the US for instance, individuals are subject to estate tax. An article on this will follow soon.
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