I am a businessman and run a clothing company in India. My daughter has gone to the US for her undergraduate studies. I want to gift her a sum of approximately ₹15 crore for her future security. I am aware that if I transfer money to her foreign bank account, I would be able to transfer only $250,000 in a financial year as per LRS (Liberalised Remittance Scheme) limits and it will be subject to TCS (tax collected at source). I have been advised that I can instead gift her this entire sum in her NRO (non-resident ordinary) account in India at one go and then she will be able to remit $1 million per financial year outside India. Is this correct? Would this route attract TCS too?
—Name withheld on request
I assume that your daughter has become a NRI (non-resident Indian) by now. Your understanding is correct that making a gift to your daughter in her US bank account would be subject to LRS limit of $250,000 per financial year and would attract TCS.
However, even making a gift of a rupee to her NRO account is treated as a transaction made under LRS and is subject to the annual LRS cap of $250,000 per financial year.
Therefore, you won’t be able to transfer ₹15 crore to her NRO account outright and it will be subject to the same LRS limit of $ 250,000 per financial year.
Secondly, the Finance Act 2023 made an amendment whereby now gifts made to NRO accounts are also subject to TCS with effect from 1 July 2023.
Barring the initial threshold limit of ₹7 lakh, TCS at 20% (plus applicable surcharge and cess) would be levied on the rupee gifts made to the NRO account.
It may also be noted that though TCS was introduced on rupee gifts made to NRO accounts with effect from 1 July 2023, the initial threshold of ₹7 lakh is applicable for the entire financial year 2023-24.
Further, the CBDT (Central Board of Direct Taxes) has clarified that the exemption threshold of ₹7 lakh is a combined threshold across all categories of LRS except for overseas tour and programmes.
Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.
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Published: 19 Feb 2024, 11:05 PM IST