Tax Implications of Gifting Money to an NRI Daughter-in-Law
A resident Indian father-in-law wants to gift money to his daughter-in-law, a non-resident Indian living in the UAE for nine years. She plans to invest the funds in UAE property. Many families face similar situations, wondering about tax consequences in India. The good news is that Indian tax law provides clear exemptions for such gifts.
Gift Tax Exemption for Relatives
Under the Income-tax Act, 1961, gifts between relatives are completely tax-free. A daughter-in-law qualifies as a relative under this law. Therefore, the gift amount remains exempt from tax for both the donor and the recipient. No income tax applies regardless of the sum involved. This exemption simplifies financial planning for families with NRI members.
Recommended Documentation
Although not mandatory, executing a gift deed or declaration is highly advisable. Proper documentation serves as proof during income tax inquiries or scrutiny. It clarifies the nature of the transaction, preventing misunderstandings with tax authorities. Families should maintain records to avoid future complications.
Transfer Methods and TCS Rules
You can transfer the gifted money in two ways. First, credit it to your daughter-in-law's Non-Resident Ordinary account in India. Second, remit it directly to her overseas bank account. If the total remittance exceeds ₹10 lakh in a financial year, Tax Collected at Source applies. Banks collect TCS at 20% on the amount above ₹10 lakh.
Importantly, TCS is not a final tax cost. The donor can claim it as a credit while filing the Indian income tax return. For remittances, banks typically require a Chartered Accountant's certificate in Form 15CB. This applies whether you send money directly overseas or she transfers from her NRO account.
Clubbing Provisions and Foreign Income
Indian tax law includes clubbing provisions for assets transferred without adequate consideration. Income from assets given to a son's wife might be included in the transferor's income. However, the law first computes income in the transferee's hands before clubbing.
In this case, the NRI daughter-in-law will invest in UAE property. Any income from this foreign property, like rental income or capital gains, accrues outside India. As an NRI, she is not taxable in India for such foreign income. Consequently, no taxable income arises in India, making clubbing provisions irrelevant for tax returns.
Understanding these rules helps Indian residents support NRI family members confidently. Always consult a tax professional for personalized advice based on specific circumstances.
