What happens when you inherit money or property or are gifted the same? Read below to learn more about the rules for inheritance and gifting in India and the USA.
US Rules on Inheritance and Gifting
If a US person (this definition includes both residents and citizens and even companies, trusts and partnerships) receives a gift or inheritance from a non US person (or people) in total of over $100,000 in a given calendar year, an information form needs to be filed with the IRS. For more information go to the IRS website: http://www.irs.gov.
The gift or inheritance to an individual is excluded from gross income on the tax return. The form to be filed is not a tax return because there is no tax on gifts from foreign persons. However, this informational form must be filed to avoid strict penalties.
If the gifts are coming from foreign partnerships or corporations, they may be considered taxable income. Gifts from foreign trusts also have special rules.
As per the IRS site, “A gift to a U.S. person does not include amounts paid for qualified tuition or medical payments made on behalf of the U.S. person.”
Gifting rules in India
The Gift Tax was abolished in India in 1998. However, gifts exceeding Rs 50,000 received from any person who is not a close relative* of the receiver is to be included in the taxable income of the receiver as per the provisions of the Indian Income Tax Act, 1961.
The above provision will be applicable to the recipient irrespective of his residential status - resident or non-resident.
*Close relative – Immediate family members and close blood line of parents and spouse’s parents.
Exclusions to taxing of gifts in the hands of recipient -
Taxing of gifts shall not apply to any money or property received:
i) From any relative; or
ii) On the occasion of the marriage of the individual; or
iii) Under a will/by way of inheritance; or
iv) In contemplation of death of the payer or donor, as the case may be; or From any local authority; or
v) From any Fund, Foundation, University, Educational institution, hospital, other type of medical institution, or any trust or Institution (referred to in clause (23C) of section10 of the Income Tax Act; or
vi) From any trust or institution registered under section 12AA of the Income Tax Act.
The author, Ariadne Horstman, is a financial planner at InvestmentYogi.
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