The Finance Bill 2019 was presented in the Union Budget on 05 July 2019. The Bill has proposed to impose a tax on all gifts, from money to a property, transferred to a Non-Resident Indian (NRI) from a resident Indian. The tax shall be imposed on all such transactions made on or after 05 July 2019.
Earlier, any form of gifts transferred by a resident Indian to an NRI – expect a few specified relatives – was ruled out under the purview of tax. The previous tax required the receiver i.e NRIs in this case, to disclose the transaction and pay tax accordingly.
However, a loophole was unplugged during the process. The NRIs’ source of income was generated abroad and the Income Tax Department had no leverage to accrue income in the country.
The amendment aims at generating income in India by imposing taxes on all such gifts having its origin in the country. The taxes applicable to the gifts will be the same as that of the normal slab rates associated with the resident Indians.
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Once a gift has been transferred to an NRI, he/she is required by law to disclose the transaction of gifts originating in India and pay tax accordingly. A gift can be stocks/shares, vouchers, properties or monetary transactions exceeding Rs 50,000.
However, gifts transferred to relatives such as siblings, and their spouses will not be taxable. The list of relatives is specified under Section 56 of the IT Act, 1961.
In addition, the Union Budget 2019 also proposed to continue the Double Taxation Avoidance Treaty on such gifts. The treaty will be effective from 01 April 2020.