Taxing presents made abroad could also be govt’s technique to test unlawful transactions

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The current price range noticed fairly a number of important and not-so-significant modifications to the tax legal guidelines. One of many important modifications was about taxation of presents made by a resident abroad to a non-resident Indian (NRI).

Beneath the Liberalised Remittance Scheme notified by the Reserve Financial institution of India (RBI) beneath the Overseas Trade Administration Act, a person resident in India, is permitted to remit as much as $250,000 per monetary 12 months for sure specified functions. These functions embrace presents and donations, abroad journey, upkeep of shut kin, abroad medical therapy, abroad research, buy of property overseas, opening of an abroad checking account, making abroad investments, giving loans to NRI kin, and so forth. There isn’t any restriction that such abroad presents can solely be made to kin, not like the requirement for upkeep, which may solely be for shut kin.

Beneath the tax legal guidelines, till the Funds, presents obtained by an individual in cash or of immovable property or of sure specified properties, have been taxable except obtained from a relative as outlined, or beneath any of the opposite specified exemptions. Nonetheless, the scope of the tax legal guidelines extends solely to India. Additional, within the case of an NRI, solely earnings accruing or arising in India, deemed to accrue or come up in India or obtained in India is taxable. Due to this fact, the place you remit cash to an NRI as a present, for the reason that reward is accomplished exterior India when your financial institution pays the recipient’s financial institution, such presents weren’t thought-about as taxable in India in any respect.

The current change within the price range has, nevertheless, meant that such abroad presents made on or after 5 July 2019 could be deemed to accrue or come up in India, and must be thought-about for the needs of taxation in India. This may not solely imply the requirement of cost of taxes in India by the recipient NRI, but additionally the requirement of withholding of tax by the resident donor remitting the cash to the NRI, the submitting of the related varieties certifying deduction of tax at supply (TDS) by the resident donor in addition to the statements of TDS, and the submitting of an earnings tax return in India by the NRI recipient of the reward.

Nonetheless, the exemption out there to receipts from outlined kin will proceed to use even to an NRI recipient. So, in the event you remit cash to your NRI daughter as a present, she would proceed to be exempt from taxation in respect of that receipt, as it’s made out of a guardian, and no submitting necessities would come up.

Equally, some tax treaties have a provision that “different earnings” (aside from that listed in particular clauses of the treaty) will probably be taxable within the nation of residence of the recipient. Presents don’t fall beneath every other clause of tax treaties, and in case of a treaty the place there’s such a clause, the recipient of the reward is not going to be liable to pay tax in India for such a present. In fact, the advantage of the tax treaty could be out there provided that the recipient has a certificates of tax residency issued by the opposite nation.

There may be, nevertheless, a better drawback confronted by overseas non-profit organisations (NPOs). Even donations obtained by such organisations from Indian residents could be liable to tax in India, with attendant penalties. Beneath tax legal guidelines, there’s an exemption for donations obtained by charitable organisations, however that applies solely to charitable organisations registered beneath Indian tax legal guidelines. So in the event you want to make a donation to your alma mater, which is a overseas college, like Harvard, Stanford, MIT or London Faculty of Economics, you first must confirm whether or not they’re entitled to get the advantage of the tax treaty exemption. If not, you’ll want to deduct TDS from the donation, and adjust to the related submitting of varieties. This taxation of overseas NPOs appears to be an unintended drafting mistake, and one hopes that this will probably be quickly rectified. Since this could occur solely within the subsequent price range, in the mean time, the federal government ought to concern a clarification that such donations to abroad NPOs should not meant to be topic to taxation, however solely presents made to different individuals.

Presents made in India to NRIs have been taxable even earlier than the modification. The modification, extending the taxation to remittance made abroad, has maybe been made with the intention of stopping manipulative transactions of giving presents to unrelated events, which aren’t actually presents, however are loans (which aren’t permitted beneath Liberalised Remittance Scheme) or meant to be held on behalf of the donors.

Gautam Nayak is a chartered accountant

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