For Non-Resident Indians (NRIs) and those who have returned to India, navigating the tax implications of cross-border financial transactions can be complex. Two common scenarios involve gifting money to family abroad and selling overseas property. We break down the expert advice on handling these situations within the Indian tax framework.
Gifting Money from a Foreign Account to an NRI Child
A person who has recently resettled in India after years abroad posed a common query. They hold a foreign bank account containing past employment earnings and wish to gift some of these funds to their daughter, who continues to live overseas. The primary concern was whether this transaction would trigger any tax liability in India for either party.
According to the Income Tax Act, 1961, any monetary gift received by a non-resident from a resident is taxable in India if the total value exceeds ₹50,000 in a financial year. However, this rule has a crucial exception for gifts between close family members.
Gifts received from relatives are entirely exempt from tax, regardless of the amount. The Act's definition of "relative" explicitly includes the relationship between father and daughter. Therefore, a gift from a resident parent to their NRI daughter falls under this exemption and will not create any tax liability in India.
Furthermore, since the money is being transferred directly from the parent's overseas bank account and not remitted from India, the provisions for Tax Collected at Source (TCS) on outward remittances do not apply. For documentation and to pre-empt any future inquiries from tax authorities, it is highly advisable to prepare and preserve a formal gift deed or gift declaration as proof of the transaction's nature.
Selling Overseas Property: The TDS Certificate Advantage
In a separate case, an NRI living in Dubai plans to sell a property purchased there in 2017. As the property is a long-term asset, the seller is aware of the 12.5% tax on long-term capital gains. However, the buyer has requested the seller obtain a certificate from the tax assessing officer.
Under Indian law, a buyer purchasing immovable property from a non-resident is obligated to deduct Tax Deducted at Source (TDS) before making the payment. A Supreme Court ruling clarified that TDS should ideally be deducted only on the portion of the sale consideration that represents the taxable capital gains, not on the entire sale amount.
In practice, however, buyers often seek protection from being held as "assessee-in-default" by the tax department. Without a lower deduction certificate from the tax authorities, buyers typically deduct TDS on the full sale value, not just the capital gains. This can lead to a significantly higher amount being withheld upfront.
How the Certificate Helps
By applying to the Income Tax Department, the seller can request a determination of the appropriate TDS rate. The assessing officer reviews the details, including the cost of acquisition and expected capital gains, and issues a certificate specifying a lower TDS rate to be applied to the gross sale consideration.
This certified rate generally corresponds to the tax liability on the actual capital gains. With this certificate, the buyer can deduct TDS at the approved lower rate, preventing excessive withholding. This process ensures compliance, aligns the TDS with the actual tax due, and avoids unnecessary cash flow blockage for the seller, who would otherwise have to file for a refund of the excess amount withheld.
These clarifications, provided by Harshal Bhuta, a partner at P. R. Bhuta & Co. Chartered Accountants, highlight the importance of understanding specific provisions to manage cross-border finances efficiently and in compliance with Indian tax regulations.
