It is to be noted that gift tax has been abolished and hence the father is not liable to pay gift tax in respect of such amount remitted from his son as a gift. It is a normal practice whereby NRI’s settled abroad remits money back home thus such money is not taxable in the hands of the recipient, neither in the form of gift tax nor any other tax. However interest earned on such amount received by the father will be taxable. Thus in our opinion, father should not hesitate or have any fear in receiving such money.
In order to avoid any conflict with the Income tax authorities, one should ensure that there is a transparency in respect of such receipt of the gift. It is our humble advice that such receipt of gift should be properly recorded in such a way that its genuineness can be proved. Further such receipt of gift should be appropriately reflected in the final accounts of the recipient which are to be filed with the Income Tax Dept. along with the Income tax returns. If the recipient of such gift adequately discloses such gift and further conducts himself within the framework of law, there should not arise any possibility whereby the Income Tax Dept. will raise any suspicion in respect of any expenditure incurred from such money received as gift. Further you have asked whether father can incur any expenditure from such money received. (for e.g. if Father wants to buy a luxury car for 1 million rupees without getting it financed and his father will put his PAN with this purchase) In the above respect, we would state that the Father can incur any expenditure from such amount received from son as a gift, however it would be advisable to keep a proper record of such expenditure. Accordingly, Father can also purchase car from the same. It is to be noted that if the son remits such amount and transfers the same in the Father’s personal account, such receipt may not be taxable but any interest received on such amount would be taxable in the hands of the recipient (Father). In order to avoid such tax, we would suggest an alternative. Instead of transferring money in the Father’s personal account, the son (‘M’) can open an NRE account as income on such NRE account is tax free i.e. not taxable. He can accordingly transfer such amount to his NRE account. Son (‘M’) can purchase the car in his own name and give it to the Father for his use.
As already stated above, there should be proper transparency in respect of such remittances (gift). The money should be transferred properly and through proper source. Further such a transfer or remittances should be properly disclosed and reflected in their respective records. Such remittances should also be reflected in their respective Income tax returns. If the above is adhered to and the other requirement as applicable then ‘M’ or ‘Father’ will not commit any contravention of the law.