NRI child’s gift to parents: Why tax notice can come
When an NRI child sends money to their parents in India for various purposes, it may not be subject to taxation for the parents. However, if a significant amount of money is transferred, the Income Tax Department may inquire about the source and legitimacy of the funds. In such cases, parents may need to provide explanations and supporting documents to establish that the transferred money was indeed a genuine gift or family transfer.
The Income-tax Department may scrutinize an NRI child's money transfer to their parents in India under the following circumstances:
1. A substantial credit in the parent's bank account, especially when the parents' disclosed income is modest.
2. High-value investments made by the parents shortly after receiving the funds.
3. Mismatches between the information reported to the tax department and that available through the parents' Annual Information System (AIS).
4. Routing of funds through unrelated persons or multiple bank accounts.
5. Inability to establish the NRI child's source and capacity to make the gift.
Parents should maintain adequate documentation to prove the transaction originated from the NRI child. This includes bank account statements, foreign inward remittance certificates, the NRI child's passport and overseas residency evidence, proof of the parent-child relationship, gift deeds or declarations, loan agreements (if applicable), correspondence related to the remittance, evidence of the NRI child's financial capacity, and records of fund utilization.
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