Many people in India frequently wonder whether a spouse, parent, or close relative who sends money to their bank account from abroad will consider it a gift and be taxed. Lack of proper understanding of tax rules often leaves people confused and fearful of receiving a tax notice.
On which transfers is it necessary to pay tax?
There are two types of cases where money flows into India from abroad. First, when an Indian receives money in exchange for business, services, or freelancing done abroad. In such cases, it is considered income and tax is mandatory under income tax rules. If tax is not paid, the Income Tax Department can issue a notice and impose a penalty. Second, when a relative working abroad sends money solely as a gift, such as a husband, wife, parent, son, daughter, or other close relative.
Gift Money Rules
If a non-relative sends more than Rs 50,000 in a year, it will be considered as income and tax will be payable on it. But if NRI relatives like husband, father, mother, brother, sister etc. send money from abroad, then the Income Tax Department considers such money as a gift and does not charge tax on it. For example, if a relative sends Rs 5 lakh from Dubai, then no tax will be payable on that money. This rule falls under the category of “specified relatives” under Indian Income Tax rules.
Returns on investment are taxable
However, if you received money from abroad as a gift and later invested it in fixed deposits, shares, bonds, mutual funds, or other investments, you will be taxable on the income (interest, dividends, capital gains, etc.) from that investment. The gift exemption is only available on the original amount remitted, not on the income.
If an NRI relative sends you gift money from abroad, that amount is not taxable. However, if the amount received from a non-relative exceeds ₹50,000, tax is mandatory. Furthermore, the income earned from the use of that gift is subject to tax. It is important to carefully understand every tax-related procedure and rule.
