FUNDS REMITTANCE DIRECTLY TO RESIDENTS ACCOUNT: GIFT AND WEALTH TAX

Recently during the discussion with an NRI , I observed a normal tendency of Short Term NRI’s that they don’t open NRE account to remit funds to india and they are sending funds directly to their relatives / friends accounts and from these accounts they do further investment in real-estate , stock market , fixed deposits etc.

Now it looks normal that it’s your money that you are sending funds to your Indian friends / relatives but this time you forgot about 2 major tax implications on this act or in other words we can say that 2 major tax benefits if your route these transactions from your NRE accounts , these are Gift Tax & Wealth Tax

Gift Tax says that the receiver has to pay tax for receiving any gift valued at Rs.50,000 and more, there are exemptions for gifts received from certain people and the major exemption is that gift received from close / blood relative is exempted from gift tax

All the countries have made their gift tax rules for e.g. If a US person receives a gift or inheritance from a non US person (or people) in total of over $100,000 in a given calendar year, an information form needs to be filed with the IRS. The gift or inheritance to an individual is excluded from gross income on the tax return. The form to be filed is not a tax return because there is no tax on gifts from foreign persons. However, this informational form must be filed to avoid strict penalties.

Now wealth tax i.e. all resident Indians are required to pay wealth tax and file a wealth tax return if their net wealth from assets exceeds Rs 30 lacs.
The Assets in this case include land, property, jewellery, cars, aircrafts, yachts and cash in excess of Rs 50,000. For Resident Indians (Resident Ordinary Residents - ROR), wealth tax is payable on all these assets, irrespective of whether they are located in India or abroad. For Non Resident Indians (NRIs), wealth tax is payable only on those assets that are located in India.

Now when you are sending money to India in your friends / relatives account then knowingly or unknowingly you are raising their Tax liabilities at the same time when you require back that money then again that will be subjected to taxes so be straight and always route all your fund through your NRE account and always keep your excess funds in NRE account as

An NRI can gift to his/her parents in India from their NRE account without their parents suffering any tax.

Likewise, balances held in such accounts are exempt from Wealth-tax in terms of Section 6(ii) of Wealth-tax Act, 1957.

For other details / queries, drop a mail at prashant.singh@sbi.co.in