A resident Indian can gift money to an NRI under the LRS up to US$250,000 per financial year. The tax outcome depends on relationship: gifts to a 'relative' (spouse, parents, children, siblings, lineal ascendants/descendants) are fully exempt; gifts from a non-relative above Rs 50,000 in a year are taxable in the NRI's hands under Section 56(2)(x) and, since the Finance Act 2019, are deemed to arise in India. Monetary gifts should be routed to the NRI's NRO account.
The two rulebooks: FEMA and Income-tax
Gifting to an NRI sits at the intersection of two regimes. FEMA governs whether and how much you can transfer (the US$250,000 LRS ceiling, the account it lands in). The Income-tax Act governs whether it is taxed (Section 56(2)(x) and the relative definition). Both must be satisfied.
Which gifts are tax-free
Under the Explanation to Section 56(2), a 'relative' includes spouse, brother/sister (and of the spouse), brother/sister of either parent, and any lineal ascendant or descendant (and of the spouse). Gifts between these parties are exempt regardless of amount. Gifts on the occasion of marriage, under a will/inheritance, or in contemplation of death are also exempt.
When tax applies
If the donor is not a relative and the aggregate of gifts in the year exceeds Rs 50,000, the entire amount is taxable as 'income from other sources' for the NRI. Post-2019, even a gift from a resident to a non-relative NRI is deemed to accrue in India and is taxable here.
FEMA and account mechanics
Rupee gifts to an NRI are credited to the NRO account; foreign-currency gifts are remitted within LRS. Gift of immovable property: an NRI/OCI can receive residential or commercial property as a gift from a resident relative, but agricultural land, plantation or farmhouse cannot be gifted to an NRI/OCI. If the NRI later sells a gifted property, repatriation of proceeds is capped at US$1 million per financial year (RBI approval beyond that). A gift remittance also counts toward the 20% TCS test once LRS remittances cross Rs 10 lakh in the year.
If the NRI lives in the US
A US person (citizen, green-card holder or US tax resident) who receives a large gift from a foreign individual - including a parent in India - may need to report it to the IRS on Form 3520. Missing the form can bring penalties, so check the reporting position with a US tax adviser before the money arrives. On the India side, the resident donor sends the money abroad under the LRS route through their bank, which counts toward the annual LRS limit and the TCS test above. For the wider US-India picture, see our USA corridor hub.
Documentation that protects both sides
Use a registered gift deed (for property) or a simple gift letter (for money), keep proof of the banking channel, and have the donor disclose large gifts in their return. RTA & Associates' practitioner guide covers the FEMA classification in depth: Gifting rules for NRIs. See also our FEMA compliance service.
How NRI Blueprint helps
We structure family gifts to stay tax-free where the relationship allows, keep the FEMA paperwork audit-ready, and coordinate the NRO routing. Book a strategy call.