Transfer of Property from NRI to Sibling as a Gift: Process, Documentation and Tax Implications
For Non-Resident Indians (NRIs), transferring property in India can be a complex task due to the country's stringent laws and requirements. Gifting property to a sibling is one such common scenario, which involves several steps and detailed documentation. This article aims to guide NRIs through the process and shed light on the necessary documents, steps required, and tax implications.
Understanding NRIs and Their Property Rights in India
A Non-Resident Indian (NRI) is a citizen of another country who has either permanently moved out of India or has not been residing in the country for more than 182 days in any financial year. Despite being abroad, NRIs retain certain rights over properties in India provided the property is immovable (such as residential or commercial properties) and not agricultural.
Citizenship and proof of NRI status can be verified using a passport or an Overseas Citizenship of India (OCI) card. The transfer of immovable property by NRIs requires adherence to specific legal formalities and regulatory frameworks, as dictated by the Immovable Property Act and the Foreign Exchange Management Act (FEMA).
Process for Gifting Estate in India
Drafting the Gift Deed
The first step in gifting property is to draft a gift deed. This document must be detailed and precise, stating the exact nature of the property being transferred, the relationship between the donor (NRI) and the recipient (sibling), and any conditions attached to the gift.
Using the Gift Deed
The gift deed should be executed on a non-judicial stamp paper of the appropriate value as per India's Stamp Act. This step ensures legal validity and prevents disputes in the future.
Registration of the Gift Deed
The next crucial step involves registering the gift deed with the local sub-registrar of properties in India. Both the donor and recipient must sign the deed in the presence of two witnesses. In cases where the NRI is not physically present in India, they can appoint a trusted Power of Attorney (POA) in India to complete the registration on their behalf.
Power of Attorney (POA)
An NRI can grant a POA to a trusted individual (such as a family member or friend) to act on their behalf in registering the gift deed. The POA must be notarized and may require further legal formalities, such as apostillation or consularization, depending on the NRI's country of residence.
Types of POA
A General POA may be used, but it is advisable to specify the powers related to the registration of the gift deed to avoid any ambiguity or disputes.
Tax Implications
Gift Tax
Gifts received from specified relatives, including siblings, are exempt from tax under Section 56 of the Income Tax Act 1961 in India. Therefore, the sibling receiving the property as a gift does not have to pay income tax on it.
Capital Gains Tax
However, if the sibling sells the property later, they may be subject to capital gains tax based on the property's fair market value at the time of the gift and the original cost incurred by the NRI, the donor. This tax is levied under sections 43A and 43B of the Income Tax Act 1961.
Wealth Tax
As of 2019, there is no wealth tax in India, as the wealth tax has been abolished under the Indian constitution.
FEMA Compliance
NRIs need to ensure compliance with the Foreign Exchange Management Act (FEMA) regulations when gifting property in India, especially if the property was acquired through foreign funds. This includes obtaining necessary approvals and registrations.
Conclusion
Transferring property from an NRI to a sibling as a gift can be accomplished through the proper execution of a gift deed, registration with the local sub-registrar, and potentially using a POA if the NRI is not physically present in India. While the tax implications are generally favorable for the recipient, future sales of the property may incur capital gains tax. It is advisable to consult with a legal expert or a tax consultant in India to ensure compliance with all legal and tax obligations.