Provisions relating to receipt of Gift from a Foreigner

Provisions relating to receipt of Gift from a Foreigner

An individual in India receives a donation from a foreigner who is not related to him. What would be the tax implication and other statutory compliance related issues?

Foreign Contribution essentially refers to donations in cash or kind when received by any person from any foreign source, whether directly or indirectly, though one or more persons.

As per FC(R) Act, foreign source includes the following;

1. Government of any foreign country or territory and agency of such Government,


2. any international agency not being the United Nations or any of its specialised
   agencies, the World Bank, International Monetary Fund or such other agency
   as Central Government may by notification in Official Gazette specify in
   this behalf,


3. a foreign company within the meaning of section 591 of the Companies Act,
   1956 and also includes




1. a company which is a subsidiary of a foreign company, and


2. a multi-national corporation within the meaning of this Act,




4. A corporation not being a foreign company, incorporated in foreign country
   or territory,


5. A multi national corporation within the meaning of this Act,


6. A company within the meaning of the Companies Act, 1956 if more than one
   half of the nominal value of its share capital is held, either singly or
   in the aggregate by one or more of the following, namely:­




1. Government of foreign country or territory,


2. Citizens of a foreign country or territory,


3. corporations incorporated in a foreign country or territory,


4. trusts, societies or other associations of individuals (whether incorporated
   or not) formed or registered in a foreign country or territory,




7. a trade union in any foreign country or territory, whether or not registered
   in such foreign country or territory,


8. a foreign trust by whatever name called or a foreign foundation which is
   either in the nature of trust or is mainly financed by a foreign country
   or territory,


9. a society, club or other association of individuals formed or registered
   outside India,


10. a citizen of foreign country,

NRI who is an Indian citizen is not considered as a foreign source and hence donation received from NRI is not a foreign contribution even if it is in convertible foreign exchange. However, if he is a foreign citizen then the NRI will be considered as a foreign source.

Is an individual donee liable to get prior permission from Central Government for receipt of foreign contribution ? Is there any reporting provisions binding him to comply with?

As per FCRA the persons liable to get themselves registered or get prior permission or report receipt of foreign contribution are listed in section 4.

Apart from the persons mentioned in Section 4 of FC(R)A, 1976, (which does not specify anything about an individual donee) all individual are entitled to receive foreign funds without any restrictions. In other words FCRA is not applicable to private individuals. The only exception in this regard is receipt of stipend or scholarship from foreign source in excess of Rs.36,000/- which should be reported to Central Government by virtue of Section 7.

Considering the above, there is no statutory compliance issue for a private individual who receives a foreign contribution.

What are the provisions in Income Tax which governs the taxability of Gifts?

Section 56 (2)(vi) was inserted by the Finance Act, 2006 with effect from 1-4-2007, the following is the reproduction of the act

...........................

(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006, the whole of the aggregate value of such sum:

Provided that this clause shall not apply to any sum of money received

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital
or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.

Explanation.: For the purposes of this clause, relative means

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the person referred to in clauses (ii) to (vi).]

The above provisions are self explanatory.

Conclusion:

1. Foreign contribution received by a private individual as gift from a non relative is taxable in the hands of the receiver as income from other sources if it exceeds Rs. 50,000/- per annum. (The Whole amount is taxable)


2. There are no provisions in FCRA, 1976 which prohibits or provides any conditions to receive foreign contribution as gift from any foreigner.


3. Any gift received from Trust or Society registered u/s 12A(a) is completely exempted from tax liability in the hands of the receiver.


4. Section 5 of the Gift Tax Act restricted the extent of gifts that can be made by Non-residents. Now, that the gift tax barrier is removed, the gifts can be made even by a foreigner to any person in India, even though the donee is not a relative.