Gift Tax in India and USA
Everybody loves gifts. You won't love them as much when you understand the tax implications though.
A Gift is a voluntary transfer of property from one person (being the ‘Donor’) to another (being the ‘Donee’) where full value of consideration is not received in return. For the purpose of this article, remember a couple of things:
Person who receives the Gift = Gift recipient = Donee
Person who gives the Gift = Gift giver = Donor
Tax in India
If you receive any sum of money or property exceeding INR 50,000 in a financial year, you pay tax under under the head ‘Income from Other Sources’:
The above provisions shall not apply to any sum of money or value of property received:
from any relative (refer FAQ below for meaning of relative); or
on the occasion of the marriage of the individual; or
under a Will or by way of inheritance; or
in contemplation of death of the payer or donor, as the case may be; or
from any local authority as specified in the Act; or
from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution specified in the Act
Gifts to a relative
Accordingly, you can gift any sum of money to a relative without any tax implications. Who are covered under relative?
In case of Individual:
spouse of the individual;
brother or sister of the individual;
brother or sister of the spouse of the individual;
brother or sister of either of the parents of the individual;
any lineal ascendant or descendant of the individual;
any lineal ascendant or descendant of the spouse of the individual;
spouse of the person referred above
In case of an HUF:
Any Member thereof
Now, let's add the complication of US tax laws to this:
Tax in USA
US tax laws are based on residency as well as citizenship. That is, the US taxes both its residents and citizens on their global income irrespective of where they live. A “US person” includes the following:
• US citizen
• Green Card holder
• Person meeting Substantial Presence Test (physical presence in US)
Galactic Tip
If you are a US citizen/ Green Card Holder, don't forget your US tax implications.
Gifts by US Person
Unlike in India, in USA Gift tax is payable by the donor (i.e. the giver) of the gift. You can gift upto USD 15,000 without any tax liability (annual exclusion).
Points to keep in mind:
The annual exclusion applies to gifts to each donee.
In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.
The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000.
For 2018, 2019, 2020 and 2021, the annual exclusion is $15,000.
Galactic Tip
This gives you decent scope for planning your Gifts to avoid unnecessary taxation.
Also note, if you are a US Citizen, you can gift more than USD 15,000 without any payment of tax. This would be deducted from your lifetime estate tax exemption - $11.7 million currently.
Case Studies
Case 1: Gift by US resident to Indian parents
Tax in USA: As a US person, you are required to report gifts in your US tax returns. If the gift exceeds USD 15,000 to one person, gift tax will apply.
If you are a US citizen, you can use your lifetime exemption to gift a larger sum without payment of tax.
Tax in India: In India, there would be no tax implications on the parents since this is a gift from a "relative".
Case 2: Gift by US citizen residing in India to children in India
Tax in USA: As a US person, you are required to report gifts in your US tax returns. If the gift exceeds USD 15,000 to one person, gift tax will apply.
Since the person in question is a US citizen, they can use their lifetime exemption to gift a larger sum without payment of tax.
Tax in India: In India, there would be no tax implications on the children since this is a gift from a "relative".
Case 3: Gift by Indian parents to child residing in the US
Tax in USA: In USA, the gift giver (donor) pays tax. In the current case, the Indian parents are not US persons and are not liable for US tax. Accordingly, gift tax does not apply.
As a US person, you are required to report any gift (or bequest) from a foreign person if it exceeds USD 100,000 in a year. Form 3520 will have to filled in such a case.
Tax in India: In India, there would be no tax implications on the children since this is a gift from a "relative".
Still confused? Feel free to contact us and we'll be happy to help out.
