I am a resident Indian. I want to gift some money to my close friend who now lives outside India. He holds NRO (non-resident ordinary) as well as NRE (non-resident external) accounts in India. Can I transfer the money to his NRO/NRE accounts in India? Will it count under LRS (liberalised remittance scheme)? Will it attract TCS (tax collected at source)? If it attracts TCS, what compliance do I have to do?
—Name withheld on request
A resident individual is permitted to gift money to non-resident Indians (NRIs) or persons of Indian origin (PIOs) by remitting it in their NRO accounts. Such gift would be considered under LRS. However, such NRIs or PIOs should qualify as a ‘relative’ under the company law definition. Since you want to gift the sum of money in rupees to your friend, you won’t be able to make the gift by money transfer to his NRO account.
Alternatively, you may gift him the sum of money by making an outward foreign remittance to his foreign bank account. The remittance would be covered under LRS and would also be subject to TCS, at 20%, if the amount of remittance exceeds ₹7 lakh. The bank would collect this amount of TCS from you over and above the remittance amount and there would be no further compliance obligations on you. Note that the gift received by your friend outside India would become taxable in India to the extent of the amount which exceeds ₹50,000.
Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.
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Published: 06 Dec 2023, 10:08 PM IST