Gift

Comprehensive Guide to Asset Transfer and Gifting: Processes,
Benefits, and Compliance

This report provides a detailed overview of asset transfer and gifting methods, specifically focusing
on gifting to NRIs. It covers various asset types, including cash, shares, immovable property, and
other valuables, highlighting the benefits, limitations, and compliance requirements for each method.
The aim is to offer clear guidance on how to effectively transfer assets to NRIs while ensuring legal
and regulatory compliance.
Cash Gifts by way of Bank Transfer

1. Can only transfer to NRO bank account.
2. Transfer by way of gift is subject to LRS threshold limits ($ 250,000 in a FY). [cleartax]
[Taxguru]
3. Initial tax collected at source (TCS) @ 20% on transfers above ₹7 lakh. [ HDFC Bank]
Pros:
 Liquid cash - gives freedom of use to the recipient.
 Completely tax free in the hands of the recipient as well as donor. [India Filings]
 Subject to restrictions, the recipient can repatriate such funds.
 Directly transferring funds via a gift avoids delays associated with wills, inheritance
processes, or estate tax complexities.
Cons:
 Though gifting is permitted, transfers must comply with FEMA regulations.
 The gifted amount might be subject to taxation in the recipient’s country of residence,
depending on local tax laws.
 A gift deed is recommended to avoid disputes or tax scrutiny.
 The bank may require additional paperwork for transfers to NRO/NRE accounts, including
purpose declarations.
 The recipient is subject to limitations in case he wants to repatriate his funds.
Requirements:
 Consider making a gift deed on as a documentation to avoid disputes.
 Check LRS limits before initiating the transfer.
Post transfer:
 The NRI can transfer such amount up to $ 1 million per year. [RBI]
 The NRI can invest in securities issued by listed Indian companies, up to 5% of the total paid
up capital or the paid up value of each class of securities issued.
 Unlisted shares are typically non-repatriable, meaning they cannot be moved out of India
without RBI approval. To buy repatriable shares, NRIs must report their intentions to the RBI.
 NRIs can also invest in unlisted shares through the Portfolio Investment Scheme (PIS). To
open a PIS account, NRIs need to obtain a PINS letter from the RBI, which allows them to
open demat and trading accounts.
GIFT TAX? DEFINITION OF RELATIVES
Gifting shares [Chittorgarh]

1. Subject to prior written approval of RBI
2. Check eligibility to hold such security by NRI.
3. Gifts must not exceed 5% of PUSC of Indian Company.
4. Max $ 50000 in aggregate can be transferred in a single year by way of gift.
5. Subject to applicable sector caps for FDI and FPI
Pros:
 No liability for tax will arise at the time of such transfer.
 No stamp duty or registration.
 No LRS limit will apply – donor shall not exhaust her LRS limits.
 Simplified transfer through demat account
 Retention of ownership control over voting rights of company within the family
 Can claim exemptions under section 54EE and 54F of Income Tax Act on future sale,
separately.
Cons:
 Tax on future LTCG based on CoA of donor.
 FEMA compliances can be meticulous for NRI
Requirements: [India Briefing]

 Approval from RBI
o Name and address of self & NRI
o Nature of relationship
o Purpose of gift
o Certificate from CA for valuation of shares transferred
o Certificate from company that sectoral caps is not exceeded due to such transfer.
o Undertaking of value
 The stamp duty on demat share transfers is 0.015% of the value or the consideration of the
shares, whichever is higher.
 Submit a DIS slip to DP – authorising t/f of securities
o Recipients DP ID
o DP name
o Client ID
o ISIN of shares transferred
 Gift deed is not mandatory
 Form SH 4 and transfer deed
 WHAT ABOUT TRANSFER OF UNLISTED SHARES, BONDS, MUTUAL FUNDS?
Transferring immovable property by way of gift [Taxguru]

1. If the recipient NRI decides to sell the asset and repatriate such income received on sale, he
will be able to transfer up to $ 1 million per FY, from his NRO account to NRE or foreign
bank account.
2. Any interest income received amount deposited after sale is not exempt from tax, but is fully
repatriable without restrictions.
3. In case the property is an income generating asset, or a house property on rent, he must
nominate a person with power of attorney, who will manage such asset.
TRANSFER OF SUCH PROPERTY BY A RESIDENT TO NON RESIDENT?
Pros:
 Tax free as per section 56(2)(x) of income tax act, both for donor and recipients
 Immediate transfer of ownership, faster legal process.
 Exemptions on LTCG are available individually in hands of recipients`
Cons:
 Stamp duty (4-7%) and registration costs (1%) will be incurred.
 Cost of acquisition of previous owner will be used.
 Gifting immovable property to NRIs or foreign nationals requires adherence to Foreign
Exchange Management Act (FEMA) regulations, which can involve additional paperwork.
Requirements:
 Preparation of gift deed – specify details of donor and recipient, description of property,
donors intention to gift without consideration.
 Compliance with FEMA and RBI guidelines in case of NRIs.
Transferring assets to HUF [BankBazaar] [Nexgentransfer]

1. Beneficial when the purpose is to retain assets within the family and optimise taxes.
2. A gift deed or partition deed may be required to transfer assets to the HUF. Proper valuation
and legal compliance are critical.
3. The transfer of assets to HUF
Pros:
 HUF is a separate legal entity. All incomes received by the HUF is taxable under its own
name – advantage of lower tax brackets and exemptions.
 Equal share for both children is ensured.
 Income transferred from HUF is completely exempt from tax.
 No tax implication arises in hands of transferor on transfer of assets.
Cons:
 Assets are not under individual control – they are in the hands of the HUF and hence
collective decisions must be made.
 Cannot contribute directly to HUF corpus.
 Complexity involved during dissolution.
 Family disputes can arise over management and usage of HUF property, leading to potential
litigation.
Requirements: [eTaxguru]
Family trust [WillJiniFAQ] [WillJiniCreation]

1. Appointment of trustee
a. who is bound to fulfil the purpose of the trust and obey the directions of the author of
the trust
b. who is bound to protect title of trust property and not set up title adversary to
beneficiary.
2. Governed by the Indian Trusts Act, 1882:
a. Defines the rights, duties, and liabilities of trustees and beneficiaries.
b. The act provides flexibility in drafting the trust deed, allowing customization.
3. Roles in a Trust:
a. Author/Settlor: Creates the trust and transfers assets.
b. Trustee: Manages the trust assets and adheres to its objectives. (Refer to Section 10:
Duties of Trustee)
c. Beneficiaries: Individuals or entities for whom the trust is created.
4. Trust Deed: Legally binding document outlining the purpose, beneficiaries, powers of the
trustee, and other terms.
5. Irrevocable vs. Revocable:
a. Irrevocable: Cannot be changed once created. Income is not clubbed in the hands of
the grantor.
b. Revocable: Can be altered or revoked by the settlor. Income is clubbed in the hands
of the grantor.
6. The trustor may also create a Payable on Death Trust which will transfer her assets to the
beneficiaries at the time of her death, without the long process of probate.
Pros:
 Asset Protection: Assets in the trust are not subject to direct claims by creditors against
individual family members.
 Tax Efficiency: Helps minimize tax liability when structured with tax planning in mind.
 Succession Planning: Simplifies asset transfer without the need for probate.
 Wealth Management: Consolidates family assets for efficient management and oversight.
 Confidentiality: Family trusts avoid the public disclosures associated with wills and probate.
Cons:
 Initial Setup Costs: Legal and administrative expenses in drafting the trust deed and
transferring assets (stamp duty on assets transferred, registration fees, legal fees,
 Compliance and Administration: Trustees must maintain proper records and comply with the
trust deed and legal requirements.
 Loss of Direct Control: Once assets are transferred to the trust, the settlor loses direct control
over them.
 Taxation Complexity: Income Tax Act, 1961, treats trusts as separate entities for taxation,
which can lead to higher tax rates if not properly planned.
Requirements: [Finnacle]
 Form Memorandum of Association for the Trust: includes the objects of the trust what the
trust is formed for.
 A trust deed must be drafted and must be produced to the companies' registrar.
o Trust name
o Registered office or place of business
o Activities carried out by the trust and their objectives
o Information related to the authors/ trustors and trustees.
o Assets owned by the trust
o Period or term for which the trust will remain in operation.
o The roles, responsibilities, and powers of the trustees.
o Procedures for amending the trust deed and provisions for the closure or termination
of the trust.
 Documents required
o Trust Deed with the respective stamp value.
o Photograph, PAN card, Address proof, Identity proof of individuals associated in
trust.
o Address proof of the trust registered office.
 Submit the trust deed to the registrar along with other documents.
 Obtain trust registration certificate.
Gold/Bullion/Jewellery/Other precious items [Bajaj Finserv]

1. Often a family heirloom – really hard to sell off due to emotional attachments and legacy.
2. Could be kept at a bank locker for safekeeping.
3. Nominees can be appointed by the holder so that such assets can be inherited seamlessly at
the time of her death.
4. The holder will only have to incur bank locker charges which may vary between 7000 and
25000 per annum, depending on the bank and the type of locker.
5. Such assets are not easy to liquidate.

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Comprehensive Guide to Asset Transfer and Gifting: Processes,

Benefits, and Compliance

Cash Gifts by way of Bank Transfer

Gifting shares [Chittorgarh]

Requirements: [India Briefing]

Transferring immovable property by way of gift [Taxguru]

Transferring assets to HUF [BankBazaar] [Nexgentransfer]

Family trust [WillJiniFAQ] [WillJiniCreation]

Gold/Bullion/Jewellery/Other precious items [Bajaj Finserv]

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