NRI Gift & Inheritance Tax: What Is Taxable and What Is Not

Gift and inheritance questions come up in almost every NRI family: parents wanting to send money to children abroad, NRIs receiving inherited property in India, siblings transferring funds across borders. The tax rules are more straightforward than people assume, but the FEMA and foreign exchange rules add a compliance layer that catches people off guard.

Inheritance: Not Taxable in India

India abolished estate duty (inheritance tax) in 1985. Money, property, or any other asset received through inheritance or succession is not taxable as income for the recipient, whether they are NRI or resident. No TDS applies on inherited amounts. No gift tax provisions apply to inheritance.

However, income earned on inherited assets after receipt is fully taxable based on the recipient's residential status:

• Rent from inherited property: taxable as rental income
• Interest on inherited deposits: taxable
• Capital gains on sale of inherited property: taxable, with cost of acquisition carried over from the original owner. See our guide on capital gains on inherited property.

Gift Tax: The Rs 50,000 Rule

Under Section 56(2)(x), gifts (money, property, or other assets) received by any person are taxable as "Income from Other Sources" if:

• The aggregate value of gifts received from non-relatives in a financial year exceeds Rs 50,000
• The gift is not covered by a specific exemption (marriage, inheritance, certain trusts)

Gifts from specified relatives are fully exempt regardless of amount. Specified relatives include: spouse, brother or sister, brother or sister of spouse, brother or sister of either parent, lineal ascendant or descendant, lineal ascendant or descendant of spouse, and spouse of any of the above.

The taxability depends on the recipient's residential status. If the recipient is an NRI and the gift is not connected to India (e.g., money gifted by a foreign friend deposited in a foreign account), it is not taxable in India. If the gift is received in India or connected to Indian assets, it falls under Indian tax provisions.

Common NRI Gift Scenarios

Parents Gifting Money to NRI Children

Parents (resident) sending money to NRI children: exempt from income tax (relative gift). The parent uses the Liberalised Remittance Scheme (LRS) with a USD 250,000 per year limit. TCS of 20% applies on LRS remittances exceeding Rs 7 lakh in a year (the parent claims this back when filing their ITR). The NRI child should check whether the gift is taxable in their country of residence.

NRI Gifting Money to Parents in India

NRI sending money to resident parents: exempt from income tax (relative gift). NRI can send from their foreign account or from NRE account. However, if the parents invest the gifted money and earn income on it, the clubbing provisions under Section 64 may apply in certain cases (though typically not for gifts from adult children to parents).

NRI Receiving Inherited Property

Property inherited by an NRI is not taxable at the time of inheritance. When the NRI sells the property, TDS and capital gains tax apply. The cost of acquisition is the original owner's cost, and the holding period includes the original owner's period. Repatriation of sale proceeds follows the standard NRO repatriation process.

Gift of Property (Not Inheritance)

If a relative gifts property (not through inheritance but as a gift deed), the recipient does not pay tax on receiving it (relative gift exemption). The stamp duty value of the property on the date of gift becomes the deemed cost of acquisition for the recipient. When the recipient later sells it, capital gains are computed from this stamp duty value.

FEMA Compliance for Cross-Border Gifts

• Resident to NRI: LRS limit of USD 250,000/year. TCS at 20% above Rs 7 lakh. The gift must be for a permissible purpose under LRS.
• NRI to Resident: Can send from abroad or from NRE account (freely). From NRO: subject to USD 1 million repatriation limit.
• NRI to NRI: Both being non-residents, the transaction may fall outside Indian FEMA jurisdiction if it does not involve Indian accounts or assets. But if Indian bank accounts are used, FEMA rules apply.