A guide on gifting a property to NRIs

Let’s have a look at the Indian real estate laws related to inheritance of acquisition of immovable properties by way of gift received by the non-resident Indians (NRIs) from Indian citizens.

Generally, most NRIs are of the opinion that these laws are way too complicated, while actually they are not.

An NRI or a person of Indian origin (POI) is allowed to acquire residential and commercial properties in the form of gift from an Indian resident or an NRI or a PIO. But the law does not allow to gift an agricultural land/plantation/farm house in India to an NRI or a PIO.

What is a gift?

According to Section 122 of the Transfer of Property Act, 1822, the gifting of a property is referred to transfer of a certain existing immovable property made voluntarily and without consideration, by one person, called the “donor”, to another, called the “donee” and accepted by and on behalf of the donee.”

Only an existing property can be transferred by the way of gift and not any future property can be transferred. And the transfer has to be made voluntarily, without any compensation. The gift must be accepted by the donee or on behalf of the donee, and only during the lifetime of the donor.

Property by gift can even be transferred to a minor, one who is below 18 years of age. In other words, the donee can also be a minor, since the basic element of giving a gift is that it is given out of natural love and affection.

Can a property in India be gifted to an NRI?

Yes. An NRI or a PIO is eligible to receive a property as gift. The donor should be a resident of India/NRI/PIO. As mentioned earlier, the property to be transferred as a gift has to be either a commercial property or a residential property, but not an agricultural land, plantation property or farm house in India.

A foreign national of non-Indian origin is not eligible to acquire a property in India by way of gift.

How to transfer a gift property?

As per Section 123 of the Transfer of Property Act, 1822, for the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses.

Section 125 highlights that if one property is gifted to more than one person (two or more donees), of whom one does not accept, is void as to the interest which he would have taken had he accepted.

And as per Section 128, when a donee acquires a gift which consists the donor’s whole property, then the donee is personally liable for all the debts due by and liabilities of the donor at the time of the gift to the extent of property comprised therein.

A deed of gift of an immovable property should be registered as provided under the Registration Act, signed by or on behalf of the donor and attested by at least two witnesses. The title cannot be passed if the registration of deed of gift is not done.

Can the property acquired as gift be sold?

Yes, an NRI can sell the property he/she has acquired by gift.

The sale proceeds of ‘gift property’ should be credited to an NRO (Non-Resident Ordinary) account only, after which, the NRI may remit up to USD 1 million per financial year from the existing balance in the NRO account, subject to the satisfaction of authorized dealer and payment of applicable taxes.

The rules and regulations pertaining to gifting properties is aimed to avoid any kind of ambiguity in terms of process and handover. Even though NRIs witness such transactions often, many of them have no clarity on the process.

Can the property acquired as gift be rented out?

Yes, the properties obtained by the way of gift by the NRIs or the PIOs can be rented out. The implications for renting out a property acquired on gift will be similar to those which are applicable for renting out a purchased property.

Can an NRI gift the property received by way of gift?

Yes. An NRI or PIO has the right to gift the property which is obtained by the way of gift. It can only be gifted to a person resident in India or an NRI or a PIO.

If an NRI owns a property which is an agricultural land, plantation property or farm house, then it can only be gifted to an Indian citizen who is residing in India.

What are the tax implications pertaining to gifted properties?

If the gifted property is received from a donor who is a blood relative of the donee, then the property is exempt from tax, even beyond the limit of Rs 50,000. In this case, it is important to know who all are referred as relatives- spouse, brother or sister, Brother or sister of the donee’s spouse, brother or sister of either of the parents, any lineal ascendant or descendant of the donee, any lineal ascendant or descendant of the donee’s spouse, and spouse as referred in clauses (ii) to (vi) are considered as relatives of the donee.

Gifts received on the occasion of the donee’s marriage or from a registered trust, are exempt from the tax.

Gifts received under Will or inheritance are also not liable for tax.

However, if a gift’s value is worth over Rs 50,000 and is received from a person or at a context which does not fit in the above three categories, then the person receiving the gift will have to add the market value of the gift to his/her total income and tax would be calculated thereon.