My son is an NRI and wants to invest in a foreign exchange-traded fund (ETF). Right now, he doesn’t have enough money in his NRO account. I’m planning to gift him the required amount by transferring it to his NRO account. I want to know if there will be any tax implications for either of us because of this gift?
-Name withheld on request
Under Indian tax law, any gift made to a ‘relative’ is fully exempt from income tax, regardless of the amount. Since your son qualifies as a relative, your transfer of funds to his NRO account as a gift will not trigger any tax liability—neither for you nor your son.
Also read: Tax implications of gifting funds to minor daughter to invest in US stocks
Gift is tax-free, but watch LRS limits
As per the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), a resident Indian can remit up to $250,000 per financial year for permitted purposes, including gifts to NRIs into their NRO accounts.
While this is essentially a rupee-to-rupee transfer, the LRS includes such gifts in its overall cap. If your total outward remittance under LRS exceeds ₹10 lakh in a financial year, then Tax Collected at Source (TCS) at 20% applies on the excess amount. The remitting bank (authorised dealer) is mandated to deduct this TCS at the time of remittance—even for rupee gifts into NRO accounts, though in practice, some banks may not do so.
If TCS is collected, you may adjust it against your income tax liability or claim a refund while filing your return.
Repatriation possible, with documentation
Once your son receives the funds in his NRO account, he can repatriate the amount to his overseas bank account under the $1 million remittance facility, subject to documentation. This will typically require a Form 15CB certificate from a Chartered Accountant, as required by the bank processing the repatriation.
To avoid any future tax scrutiny, it’s advisable to execute a formal gift deed or gift declaration letter, documenting the transfer as a bona fide gift.
Finally, any income your son earns from investing the funds in foreign ETFs will not be taxable in India, since he’s an NRI and such income accrues outside India.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs