All about Gift tax and India-US tax impact

There is always confusion about the gift received by a person from a Non-resident of India living in US. There will be two laws applicable on different condition one is gift law and second is double tax avoidance agreement (DTAA) WITH US. The full law and tax impact is as under.

 Gift tax in India
Gift was taxed in the hands of giver before 1998 when the gift tax was abolished. In 2004, a new gift tax come into force where the gifts are taxed in the hands of receiver with different conditions and exemptions. 

The new gift tax provision state that any gift which may be in cash or kind above Rs. 50000 will be taxed received by an individual or non-resident of India in the hands of receiver. Value of the gift received will be added in his/her personal income and applicable tax bracket will apply on it while calculating the income tax liability. In case of the gift in kind, the rule is that the kind gift must arise in India for calculation of the value of gift. The value of gift will be calculated with these options.

- Stamp duty value for calculation of immovable property.
- Fair Market value for other assets such like securities, painting, jewellery etc.

Exemptions of gift tax
However there are some exemptions of Gift tax which are as follows.
1- Gift received from blood relatives are exempted above 50000 rupees too. In blood relation these relations come from the income tax point of view.
(a) Spouse (Husband or wife)
(b) Brothers
(c) Sisters
(d) Spouse’s brother
(e) Spouse’s sister
(f) Parents
(g) Parents of spouse
(h) Lineal ascendants of individual or spouse( Lineal ascendants are the persons who are supposed to be parents from the time being)
(i) Brothers or sisters of parents of individual or spouse.

2- Any gift received on the occasion of marriage is exempt even above Rs. 50000.

3- Any amount received under a will or inheritance is also exempt even above Rs. 50000.

DTAA with India and US
India has also signed double tax avoidance agreement with US. It provides that for Indian Americans, the first right to tax gift is with India, wherever applicable. But double tax avoidance agreement is different countries to countries. One must check the DTAA rule with their country for claiming the refund under DTAA rule.
Gift tax rule in US
Every Country has her rules for the calculation of income tax as well as gift tax. In United States, tax on gifts will be applicable to the hands of giver and not the receiver. The tax on gift law of USA also says that tax on gift law only applicable when the donor of gift is American resident, citizen or green card holder. If any person in India gives gift to the resident of America, there is no gift tax will be applicable as the donor of the gift is not an American Taxpayer. This law is applicable on cash as well as on kind such as property, jewellery etc.

In case of receiving gifts more than $ 100000 by US taxpayer, he/she must fill a form 3520 along with tax return declaring the gift amount. If the value of gift is less than $ 100000, this is not required either.
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