NRIs may face tax on wealthy gifts from Indian residents

Provision proposed in the Indian Finance Bill 2019 says NRIs will have to pay tax on gifts received from resident Indians valued at over $730
NRIs may face tax on wealthy gifts from Indian residents
Tax experts say the new provision to impose a tax on gifts by resident Indians to non-residents is mainly aimed at preventing taxable income from getting transferred overseas.
By James Mathew
Wed 10 Jul 2019 04:53 PM

India has proposed imposing a tax on expensive gifts received by non-resident Indians or non-resident non-Indians from their relations or acquaintances residing in India.

Gifts given by Indian residents to non-residents – apart from the specified list of relatives – are currently claimed as non-taxable. This was because, as per the wordings in the tax laws, the onus was on the recipient to disclose such gifts and then pay the gift tax.

As per the new provision proposed in the Indian Finance Bill 2019, non-residents will now have to mandatorily pay tax in India on the value of gifts they receive from resident Indians if such gifts originate in India and exceed a value of $730 (Rs 50,000).

The amendment is widely seen as a move to plug the existing loophole and bring such gifts under the gamut of income tax.

It has been a widespread practice in India, especially among the rich, to transfer money, properties, shares or vouchers as gifts to their relatives and acquaintances, which was seen by Indian tax authorities mainly as a means to transfer wealth abroad.

Tax experts say the new provision to impose a tax on gifts by resident Indians to non-residents is mainly aimed at preventing taxable income from getting transferred overseas.

“It is not mainly aimed as a revenue raising measure. It is to bring at par the taxation of recipients of gifts between resident Indians and non-residents,” Rahul Garg, partner with PwC India, told Arabian Business.

According to a section of the tax experts, such gifts will be taxed at the hands of the recipients, except if a double taxation treaty prohibits the same.

Garg, however, said while tax on such gifts have to be paid in India, non-residents can claim this as tax credit in their country of residence.

There have been reports about a large number of wealthy Indians seeking citizenships in countries where tax rates are comparatively lower or changing their status from resident Indians to non-resident Indians in the recent years to escape from paying high rates of taxes in India.

The effective income tax rate for super rich in India has gone up to 42.7 pecent, after this year's Budget proposal for up to 22 percent increase in surcharge on tax on incomes above certain specified levels.

Aggressive scrutiny of income tax returns and alleged witch hunting of businessmen and other high net worth Indian tax payers by tax men also led to such exodus of wealthy Indians, industry sources said.

They were also transferring their wealth from India to their new country of residence and ‘gifting’ was one of their favoured modes for such transfers.

This was resulting in the gradual erosion of taxable income base in India, tax experts said, adding that by imposing mandatory tax on gifts to non-residents, Indian tax authorities want to ensure sustaining the tax base.

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