Gift to non resident by a resident Indian would be taxable in India

Gift, as we had discussed in our earlier post, that it is out of natural love and affection, without consideration or with less consideration and if the same is received from relative it is not income but if received from a non relative above the threshold limit then it is a taxable income.

In case the person giving the gift and receiving the gift is a resident then in that case all the things happen in India and hence such gift will be taxable in India.

However, if the person a non resident then in such case gift received by him would be considered as income arising outside India and received outside India and hence not taxable in India.

Thus, if a person used to give a gift to even non relative outside India would not be liable to tax in India and since person making the gift is not liable to pay any tax on such transaction as the transaction is not considered as transfer under section 47 of the Income tax act.

To tackle the above situation an amendment was made to section 9 of the Income tax act by Finance Act, 2019 w.e.f. 01.04.2020 which is as under:

“(viii) income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid on or after the 5th day of July, 2019 by a person resident in India to a non-resident, not being a company, or to a foreign company.”

As per the above clause to section 9 Income shall be deemed to accrue or arise in India for income arising outside India, being sum of money referred to in sub-clause (xviia) of clause (24) of section 2 which is as under:

“any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;”

Section 2(24)(xviia) refers to any sum of money or value of property but section 9(1)(vii) refers to any sum of money which is contradictory.

To resolve this confusion let’s try to read the memorandum to Budget 2019 which is as under:

“To ensure that such gifts made by residents to persons outside India are subject to tax, it is proposed to provide that income of the nature referred to in sub-clause (xviia) of clause (24) of section 2, arising from any sum of money paid, or any property situate in India transferred, on or after 5th July, 2019 by a person resident in India to a person outside India shall be deemed to accrue or arise in India.”

After reading the memorandum it can be said that this clause shall cover money as well as property situated in India and hence any gift of any money or property in India would be liable to tax in India as same would be deemed to accrue in India.

Do remember that even though by virtue of this clause income shall be deemed to accrue in India but the benefits of section 56 and benefits of DTAA shall be still applicable on such gifts.

Thus, gift by resident Indian to non resident relative shall be still not considered as income for tax purpose plus taxability of such income shall be subject to DTAA with the country of non resident where he/ she is a resident.

Further, if the income becomes taxable in India, the resident will have to take TAN number and deduct TDS on same subject to DTAA.

The question which still stays is whether gifting immovable or movable property situated outside India by resident to non-resident is liable to tax in India?

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