Sending a Cash Gift to India? Understand the Tax Rules for NRIs

Non-resident Indians (NRIs) often send money to their family back home. This can be for various reasons like :

1. Maintaining their family’s lifestyle expenses
2. Fulfilling their family’s financial goals
3. Creating assets back home, etc.

NRIs often send money to their families in India—for daily expenses, financial goals, or asset creation. Among these transfers, cash gifts are common, especially during special occasions.

But while gifting is allowed, you must understand the tax implications under Indian law. Here's everything you need to know.

Rules for NRIs giving gifts to resident Indians

The Foreign Exchange Management Act (FEMA) dictates the rules for NRIs giving gifts to resident Indians. However, the Income Tax Act of 1961 dictates the rules of tax on gift money. The Income Tax Act defines gifts as any asset or cash received without the obligation to return it.

NRIs can gift a wide range of assets, including:

1. Cash
2. Immovable property*
3. Jewellery
4. Shares and securities*
5. Artwork, etc.

*Gifting of immovable property and shares/securities by NRIs to resident Indians is subject to specific conditions and regulatory compliance under FEMA and other applicable laws. It is advisable to consult with a financial or legal expert before proceeding with such transactions.

Rules of tax on gift money

Knowing the tax on cash gifts to parents in India is important. Tax might be applicable on both the NRI giving cash gifts and the resident Indian receiving them. So, here’s what you need to know:

1. The threshold limit
   
   Cash gifts up to ₹50,000 are tax-free. However, if the amount is higher, the full amount will be taxed as ‘Income from other sources’ in the recipient’s hands. Furthermore, as per Section 269ST, cash transactions above ₹2 lakh in a single instance are not allowed and may attract penalties.
   However, cash gifts received on marriage or through a will are fully exempt from tax.
   
   
2. Tax exemption on gifts from relatives
   
   Under Section 56(2) of the Income Tax Act, if you give a cash gift to your relatives, the amount will be tax-free. There is no upper limit on the tax exemption. The full amount gifted will be exempted from tax.
   For this exemption, relatives will include your -
   • Parents
   • Siblings
   • Spouse
   • Spouse’s siblings
   • Parent’s siblings
   • Your or your spouse’s lineal ascendant or descendant and their spouses
   
   
3. Justification of the cash gift
   
   According to Section 68 of the Income Tax Act, the receiver of the cash gift will have to justify the same to the Income Tax Assessing Officer (AO). The receiver will have to define the gift's satisfactory nature and source to avoid any tax implications.
   
   
4. FEMA guidelines on cash gifts
   
   FEMA has also outlined specific rules when NRIs give cash gifts to individuals in India. Some of these rules are as follows:
   
   Permissible Channels for Gifting:
   
   • NRIs or Overseas Citizens of India (OCIs) can gift funds to resident Indians through their NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts.
   • The transaction must be initiated directly by the NRI/OCI account holder; a Power of Attorney holder is not authorized to execute such gifts.

Cash Holding Limits for Recipients: While NRIs/OCIs can gift cash, the resident recipient is restricted from holding more than USD 2,000 or its equivalent in foreign currency at any given time.

Documentation Requirements: For significant gifts, especially those involving immovable property or substantial amounts, it's advisable to execute a gift deed. This deed should be on stamp paper and signed by both the donor and the recipient.

The role of NRI gift deed

If an NRI gives a cash gift to a resident Indian, a gift deed becomes mandatory. As defined under Section 17 of the Registration Act of 1908, you should execute the gift deed on a stamp paper. Moreover, the NRI and the receiver are required to sign the gift deed.

How to draft an NRI gift deed?

Here’s how you can draft a gift deed to comply with the legal requirements -

1. Get a stamp paper and draft the deed
2. Specify the name of the donor (NRI) and the receiver
3. Specify the value of the cash gift being given
4. Pay the stamp duty
5. Register the gift deed at the registrar’s office
6. The donor, donee, and two witnesses would be required for the registration
7. Submit the following documents -
   • Proof of NRI status
   • Copy of passport
   • Identity proof of the donor and the receiver
   • Address proof of the donor and the receiver
   • Power of Attorney, if applicable
   • Receipt of stamp duty paid

How to send cash gifts securely?

There are various options to ensure that your cash gifts reach your loved ones back home safely. These options are as follows -

1. Online fund transfers

   
   You can use online forex remittance facilities offered by financial institutions, like IDFC FIRST Bank, to send money in real time.

2. Wire transfers

   
   You can visit a bank in your residential country and use its wire transfer facility to send money to a bank in India. Alternatively, you can use your foreign bank account's net banking facility to send money to the receiver’s Indian bank account.

3. Through NRI bank accounts

   
   If you have an NRO or NRE bank account, you can easily send money from abroad, which can be withdrawn by your loved ones in India.

4. International Money Order (IMO)

   
   The IMO facility is being offered by the post office wherein you can draw a money order and send it to your relative in India.

5. Cheques or demand drafts in foreign currency

   
   You can draw a cheque or demand draft on your foreign bank account and send it to India. The receiver can then present the cheque or demand draft at their bank account and get them encashed.

Tips for seamless gifting

To give a seamless and cost-effective cash gift to your loved ones, here are some tips that can help -

1. Choose to remit money through an NRI bank account to save on the underlying charges and also to claim tax benefits
2. To get an exemption, try and keep the cash gift under ₹50,000
3. If you want to give a higher amount, ensure the recipient is an eligible relative
4. You can also gift a higher amount of money on the occasion of marriage to avoid a tax implication
5. Choose a bank offering a smooth digital platform for hassle-free transfers
6. Always document high-value gifts to avoid scrutiny.

Unlock the joy of giving without tax implications

Knowledge of the rules of tax on gift money can help you claim eligible tax exemptions and enjoy the joy of gifting. You also need a high-quality banking solution that ensures cost-effective and compliant fund transfers across borders.

IDFC FIRST Bank NRI banking services help you with secure and seamless cash gift transfers to India. Open an NRO or NRE bank account and send funds at your convenience wherever you are. You can also get wealth management support from the bank’s executives when sending high-value gifts and optimising tax benefits.

Celebrate life's milestones without borders or tax worries—with IDFC FIRST Bank by your side.