I am a resident of India and want to gift ₹25 lakh to my daughter, who is an NRI and has been residing in the USA for the past four years. This will be by transfer to her overseas bank account. I wish to understand whether TCS would apply to such remittance and, if applicable, the applicable rate of TCS. Is the transfer to the NRO account any different?
– Name withheld on request
Under the Indian Income-tax Act, any gift received by your daughter, being an NRI, from her parent would qualify for exemption from tax in India, since gifts received from specified relatives are not regarded as taxable income. Accordingly, the proposed gift remittance of ₹25 lakh would not give rise to any tax liability in her hands in India.
TCS under LRS
The proposed remittance by you would fall within the ambit of the (LRS) prescribed by the RBI. Consequently, the provisions relating to (TCS) under the Income-tax Act would become applicable.
As per the prevailing TCS provisions, in the case of overseas remittances under LRS made for purposes other than education or , TCS is required to be collected at 20% on the amount exceeding the prescribed threshold limit of ₹10 lakh in a financial year.
Accordingly, in the present case, since the total remittance proposed is ₹25 lakh, TCS would be applicable on ₹15 lakh ( ₹25 lakh less the threshold exemption of ₹10 lakh). Therefore, TCS would be collected at 20% on ₹15 lakh.
NRO transfer
The transfer of the gift amount to your daughter’s NRO account in India would likewise be regarded as a transaction covered under LRS and, accordingly, the provisions relating to TCS would also apply.
However, as a matter of prevailing banking practice, most banks are currently not collecting TCS on such rupee-denominated gift transfers.
Even where TCS is collected, the same does not represent a final tax outflow. The amount so collected may be claimed as a credit against your income-tax liability or as a refund while filing your for the relevant financial year, depending upon your overall tax position.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs.