When are presents acquired by NRIs topic to tax, TDS in India?

When are gifts received by NRIs subject to tax, TDS in India?

Ayush relocated together with his spouse from India to Germany a few years in the past to take up a job there. They lately visited India to introduce their new-born baby to household and mates. Not surprisingly, their new bundle of pleasure bought loads of presents from family and friends reminiscent of jewelry from paternal grandparents, authorities bonds within the title of the kid from the maternal grandparents, money presents from mates. The money so acquired was deposited in Ayush’s financial institution accounts each in India and overseas and so on.

What could be the taxability of such presents in India on condition that Ayush qualifies as a Non-Resident Indian (NRI) for earnings tax functions? Learn on to search out out.

Taxability of presents below the Indian earnings tax legislation

The Indian earnings tax legal guidelines regarding taxability of presents are the identical for Resident Indians and NRIs. Nonetheless, if an NRI is concerned within the reward transaction (giver/receiver) then further tax legal guidelines might apply.

Below the Indian earnings tax legislation, any sum of cash or any property which is acquired with out consideration or for insufficient consideration (greater than the prescribed restrict of Rs 50,000) is taxable within the palms of the recipient below the pinnacle “earnings from different sources”. Such earnings is taxable at relevant tax charges within the 12 months of receipt. Property would come with immovable property, shares and securities, jewelry, archaeological collections, drawings, work, sculptures, any murals and bullion. Different gadgets like motor vehicles or digital home equipment will not be included throughout the scope of ‘property’ for this objective however costly watches with diamonds or gold are included.

The scheme of taxability of presents could be tabulated as follows:

Sort of reward Taxable worth within the palms of the recipient
Sum of cash The entire quantity if the identical exceeds Rs 50,000
Movable property with out consideration The honest market worth of the property if it exceeds Rs 50,000
Movable property for insufficient consideration The distinction between the honest market worth of the property and the consideration if such distinction exceeds Rs 50,000
Immovable property with out consideration The stamp obligation worth of the property if it exceeds Rs 50,000
Immovable property for insufficient consideration The distinction between the stamp obligation worth of the property and the consideration if such distinction is greater than larger of (a) Rs 50,000 and (b) 10% of the consideration

The tax guidelines have been quickly relaxed for the interval 12 November 2020 till 30 June 2021 for computation of taxable worth of ‘reward’ of immovable property for insufficient consideration. As per the relaxed rule, the variance of 10% was elevated to twenty% if the immovable property was a residential unit which is held as stock-in-trade by the vendor and the switch is by means of first time allotment to the client and the consideration for switch doesn’t exceed Rs 2 crore.

Moreover, if the date of settlement for acquisition of immovable property and date of registration shouldn’t be the identical, the stamp obligation worth on date of settlement could be reckoned offered some a part of the consideration has been paid by banking or digital channel on or earlier than the date of settlement.

When presents acquired will not be taxable as per Indian earnings tax legislation

There are a number of exceptions to the above scheme of taxation. Items from specified individuals or on specified events will not be taxable. For instance, presents acquired from a “relative” or on marriage or by means of inheritance or below a will shouldn’t be taxable. Additionally, receipt by a belief from a person for the unique advantage of kinfolk of the person can be exempt. Aside from partner, the time period “relative” consists of: brother or sister, brother or sister of the partner, brother or sister of both of the mother and father, any lineal ascendant or descendant, any lineal ascendant or descendant of the partner, partner of any of the individuals referred to above.

It might be famous not all life occasions are lined for exemption. As an example, whereas presents acquired on marriage will not be taxable, presents acquired on different events like birthdays or anniversaries will not be exempted (until acquired from specified kinfolk). Additionally, there isn’t a reciprocity on the definition of ‘relative’. As an example, reward acquired from father’s brother (uncle) shouldn’t be taxable, however reward acquired from brother’s son (nephew) is taxable.

Taxation of presents acquired by NRIs

On the outset, allow us to make clear that the Indian earnings tax legal guidelines concerning presents, as mentioned beneath, apply to all non-residents (NRs) which incorporates Non-resident Indians (NRIs) as a subset.

NRIs are taxable on presents acquired in India or accruing or arising in India or deemed to accrue or come up in India. There was an ambiguity on taxability of presents acquired outdoors India by NRIs. Accordingly, Finance Act, 2019 (No. 2), launched provisions to make clear this. As per the brand new provisions any sum of cash acquired on or after July 5, 2019, with out consideration outdoors India by a NRI from a “Resident” shall be thought of as deemed to accrue or come up in India and taxable in India until it’s lined below the conditions the place presents will not be taxable in India as talked about above.

The taxability of reward of sum of cash the place the giver/recipient is an NRI could be summarised as follows:

Payer (Giver of reward) Payee / Recipient Whether or not acquired in India? Whether or not taxable within the palms of Recipient?

(If not lined below the exceptions@)

Resident* / Non-Resident Resident* Sure Sure – As acquired in India as additionally Resident* is taxable on worldwide earnings
Resident* / Non-Resident Resident* No Sure – As Resident* is taxable on worldwide earnings
Resident* / Non-Resident Non-Resident Sure Sure – As acquired in India
Resident* Non-Resident No Sure – As deemed to accrue or come up in India if paid on or after 05 July 2019
Non-Resident Non-Resident No No #
Non-Resident Non-Resident Sure Sure – As acquired in India

*Resident and Ordinarily Resident
@ Exceptions being these circumstances the place presents will not be taxable below Indian earnings tax legislation as talked about above.
#This is applicable when the reward is cash but when the gifted asset or immovable property on this transaction is positioned in India it is going to be taxable in India even in case of NRI to NRI transaction.

Thus, as a Non-Resident, presents acquired by Ayush from his “kinfolk” (as outlined above) is not going to be taxable in India. It is because on this case the kinfolk fall within the specified kinfolk class and the presents is not going to be taxable as per Indian earnings tax legislation. Additionally, presents acquired outdoors India from international mates is not going to be taxable in India as Ayush is a Non-Resident.

Nonetheless, reward of cash acquired in India from his mates or non “kinfolk” (kinfolk not within the specified class of kinfolk) in India shall be taxable in India. As well as, because of the amended provision, reward of sum of cash acquired by Ayush immediately into his financial institution outdoors India from his mates or non “kinfolk” in India will even be taxable in India (exception if mixture worth shouldn’t be greater than the prescribed restrict of Rs 50,000).

Profit below the relevant tax treaty

Revenue which is taxable as “earnings from different sources” is prone to be lined below the “Different Revenue” clause of relevant tax treaties. Few tax treaties reminiscent of these with international locations reminiscent of UAE, Sweden, Germany, Hungary, Switzerland give unique proper of taxation of different earnings (besides particular incomes like lottery, horse race, playing, and so on) to the nation of residence. In such circumstances, exemption from income-tax could also be claimed below the relevant tax treaty. Nonetheless, there are some tax treaties reminiscent of these with Canada, US, UK, France which give the appropriate of taxation to India if it arises in India. The language of the relevant tax treaty must be completely examined earlier than claiming any profit below the tax treaty.

Thus, for presents taxable in India, Ayush might consider profit below the “Different earnings” clause of India -Germany tax treaty. He will even have to get a tax residency certificates from German Tax Authorities to substantiate his residential standing below the India-Germany tax treaty.

Affect of recent guidelines to find out residential standing:

One of many vital situations to assert profit below a tax treaty is that the person ought to qualify as “Resident” of the opposite nation (i.e., not India) as per the relevant tax treaty. If a person qualifies as a “Resident” of each the international locations lined below the tax treaty (as per their respective home tax legal guidelines), the ‘Tie Breaker Guidelines’ must be utilized (within the order through which they’re offered within the tax treaty) to find out the residential standing of the person in favour of 1 nation.

Efficient monetary 12 months (FY) 2020-21, two new situations have been added to find out residential standing in India, i.e., the deemed residency rule and the 120-day rule. These new situations influence the residential standing in India for a person who’s an Indian citizen or an individual of Indian origin (PIO). Consequently the Indian citizen or PIO, who would have in any other case certified as “Non-Resident” of India, would now qualify as “Resident however Not Ordinarily Resident” (RNOR) of India.

Previous to introduction of those new guidelines, a person (Indian citizen) who would qualify as Non-Resident in India and “Resident” of Germany might have claimed non-taxability of presents acquired from India. But when such particular person now qualifies as RNOR of India below the brand new guidelines, the tie breaker guidelines of the India-Germany tax treaty will come into operation as the person will now qualify as “Resident” of each India and Germany. After making use of the tie breaker guidelines, if he qualifies as “Resident” of Germany, presents acquired from India is not going to be taxable in India. But when he qualifies as “Resident” of India, he shall be liable to tax on presents acquired from India.

TDS on presents given

In case of presents given by “Resident” to a different “Resident”, there isn’t a withholding tax obligation on the reward giver. Nonetheless, in case of reward given by a “Resident” to a “Non-Resident” or “Non-resident” to a “Non-resident”, withholding tax (Tax deduction at supply) obligations shall be relevant if the reward is taxable in India (assuming no profit could be claimed below the tax treaty).

In such a case, the reward giver shall be required to adjust to procedural withholding tax obligations reminiscent of acquiring Tax Deduction Account Quantity (TAN), deduct withholding tax, file withholding tax returns and concern withholding tax certificates to the reward recipient.

Conclusion

Items from “kinfolk”, who’re lined within the definition above, might not be taxable in India. Nonetheless, presents from mates or non “kinfolk” could also be taxable if the mixture worth exceeds Rs 50,000 per monetary 12 months. When it turns into taxable, the requirement of withholding tax obligation must be stored in thoughts particularly in case of Non-Residents.

(The author is Tax Accomplice and Nationwide Chief – Individuals Advisory Companies, EY India. Siddharth Deb, Director, Individuals Advisory Companies, EY additionally contributed to the article.)

(Views expressed are their private)

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