This question repeatedly comes to the mind of many people in India that if someone’s husband, father or any close relative sends money from abroad to a bank account, will it be considered as a gift and tax will have to be paid on it or not. Due to lack of correct information about tax rules, many times people remain confused and there is a fear of getting tax notice.
On which transfers is it necessary to pay tax?
There are two types of cases of money coming into India from abroad. First, when an Indian receives money in return for business, service or freelancing done abroad. In such cases, it is considered as income and it is mandatory to pay tax as per income tax rules. If tax is not paid, the Income Tax Department can send a notice and also impose penalty. Second, when a relative working abroad sends money only as a gift such as husband, wife, parent, son, daughter or other close relative.
gift money rules
If a non-relative sends more than Rs 50,000 in a year, it will be considered income and tax will have to be paid on it. But if NRI relatives like husband, father, mother, brother, sister etc. send money from abroad, then the Income Tax Department considers such money as a gift and does not charge tax on it. For example, if a relative sends Rs 5 lakh from Dubai, no tax will have to be paid on that money. This figure falls under the “specified relatives” category under Indian income tax rules.
Returns on investment taxable
However, if you have received money from abroad as a gift and later you invest this amount in fixed deposits, shares, bonds, mutual funds or any other investment, then you will have to pay tax on the income from that investment (interest, dividend, capital gain, etc.). Exemption for gifts is available only on the original amount sent and not on the income received.
If an NRI relative sends you gift money from abroad, there will be no tax on that amount. But if the amount received from a non-relative is more than Rs 50,000, then tax is mandatory. Also, the income earned from the use of that gift comes under the ambit of tax. It is important to carefully understand every process and rule related to tax.