Gift Deed vs. Will: How NRIs Can Claim Gift Tax Exemptions When Transferring Assets

As an NRI, you might want to transfer your assets to your loved ones. Whether it is cash, property, jewellery or any other asset that you own, you have the right to gift it to whoever you want. The Foreign Exchange Management Act (FEMA) allows NRIs to gift their assets to their loved ones back home.

While gifting or transferring of assets is allowed, the transfer can incur a tax both in your hands and in the hands of the recipient. However, there are ways to claim gift tax exemptions so that the gift becomes tax-free for the recipient. 

Before understanding how to claim gift tax exemptions, let’s understand how NRIs can transfer their assets to others.

How can NRIs transfer assets?

NRIs can use two legal ways to transfer their assets. These ways are described below -

1. NRI gift deed

An NRI gift deed is a legal document which allows NRIs to give monetary gifts to individuals or entities in India. Key features of a gift deed include:

a. The deed can be used to transfer movable and immovable property like cash, valuables, property, etc.

b. The gift deed should be executed on a stamp paper and signed by both the donor (NRI) and the donee (resident recipient)

c. The gift deed should be registered per the provisions of Section 17 of the Registration Act of 1908

2. Will

A will is a legal document that declares the NRI’s intentions regarding the distribution of their property after their demise. The features of a will are as follows -

a. The will gives NRIs complete ownership and authority over their assets when they are alive. After their demise, the will outlines the division of the assets among the named beneficiaries

b. NRIs can create a separate will for their assets in India

c. You are required to sign the will along with two witnesses attesting the will

d. You can prepare the will yourself or take the help of legal professionals

Comparative analysis of gift deed and will

Both the gift deed and will help NRIs transfer their assets. However, both these documents are completely different from one another. Here’s a table outlining the comparison between the two -

Tax implications on the transfer of assets

Here are the tax implications of transferring assets through gift deeds or wills -

1. Tax implication of gift deeds

If you transfer cash or other assets through a gift deed, gifts valued up to ₹50,000 would be fully tax-free in the recipient’s hands. However, if the value exceeds ₹50,000, the full value of the asset would be taxed in the recipient’s hands under the head ‘Income from other sources. 

That being said, gift tax exemptions are available on gifts exceeding ₹50,000. These tax exemptions are as follows -

a. If you transfer the asset to a relative, the transfer would be tax-free. A relative, in this context, means your spouse, parents, siblings, spouse’s siblings, parent’s siblings, or you and your spouse’s lineal ascendants or descendants

b. If you transfer the asset on the occasion of marriage, the transfer will not attract any tax

However, the receiver would have to justify the nature and source of the asset transfer to claim the gift tax exemption.

2. Tax implication of wills

Any transfer of assets through a will is completely tax-free. Inherited assets are exempt from gift tax under Section 56(2)(x). However, if the recipient later sells the asset, capital gains tax may apply based on the original cost of acquisition.

Common pitfalls to avoid when transferring assets
 

While NRIs can transfer their assets through a gift deed or a will, a seamless transfer can make the job easier. To do so, here are some mistakes to avoid -

 

How to transfer assets seamlessly?
 

Here are some tips that can help you transfer your assets to your loved ones without hassles -

1. Open an NRI account for seamless transfer of cash assets
2. Try and execute a gift deed when you are in India so that the recipient can sign it and also register simultaneously
3. Choose a secured transfer gateway to avoid the risk of cybercrimes
4. Inform the recipient of the transfer so that they can claim the assets in time

With a secure digital platform and a range of NRI banking solutions, enjoy risk-free transfers and send funds instantly. Transfer assets beyond borders and enjoy gift tax exemptions too.