{"id":7601,"date":"2024-04-15T07:39:15","date_gmt":"2024-04-15T07:39:15","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=7601"},"modified":"2024-04-15T07:39:44","modified_gmt":"2024-04-15T07:39:44","slug":"are-gifts-nri-usa","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/are-gifts-nri-usa\/","title":{"rendered":"Are Gifts or Bequests Received by US Resident NRIs Taxable in USA?"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large\"><picture><source srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-1024x576.webp 1024w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-300x169.webp 300w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-768x432.webp 768w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-150x84.webp 150w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-750x422.webp 750w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-1140x641.webp 1140w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2.webp 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" type=\"image\/webp\"><img src=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-1024x576.png\" height=\"576\" width=\"1024\" srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-1024x576.png 1024w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-300x169.png 300w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-768x432.png 768w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-150x84.png 150w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-750x422.png 750w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2-1140x641.png 1140w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/04\/net-investment-income-calculator-2.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" class=\"wp-image-7606 sp-no-webp\" alt=\"NRI\" decoding=\"async\" loading=\"lazy\"  > <\/picture><\/figure>\n\n\n\n<p>Indians who go to the USA for work usually become tax residents on account of a <a href=\"https:\/\/www.irstaxapp.com\/use-substantial-presence-test-calculator\/\">physical presence test<\/a>, i.e., staying there for more than 182 days. Many Indians continue to work in the USA for years. So, these Non-Residents of India (NRI) become <a href=\"https:\/\/www.irstaxapp.com\/us-person-vs-nonresident-alien\/\">Resident Aliens<\/a>. This post explains the taxation of gifts, bequests or inheritance received by such NRIs from parents or relatives who are settled in India.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-661cda5429156\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-661cda5429156\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/are-gifts-nri-usa\/#Gifts_or_Bequests_Tax_Free_in_USA\" title=\"Gifts or Bequests Tax Free in USA\">Gifts or Bequests Tax Free in USA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/are-gifts-nri-usa\/#What_types_of_gifts_or_bequests_are_not_tax-free_under_US_tax_law\" title=\"What types of gifts or bequests are not tax-free under US tax law?\">What types of gifts or bequests are not tax-free under US tax law?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/are-gifts-nri-usa\/#Is_receipt_of_the_gift_or_bequests_reportable_in_the_US\" title=\"Is receipt of the gift or bequests reportable in the US ?\">Is receipt of the gift or bequests reportable in the US ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/are-gifts-nri-usa\/#What_about_the_taxation_of_gifts_or_bequests_in_India\" title=\"What about the taxation of gifts or bequests in India?\">What about the taxation of gifts or bequests in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/are-gifts-nri-usa\/#What_about_the_income_out_of_gifted_property_Will_that_be_taxed_in_two_years\" title=\"What about the income out of gifted property? Will that be taxed in two years?\">What about the income out of gifted property? Will that be taxed in two years?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Gifts_or_Bequests_Tax_Free_in_USA\"><\/span>Gifts or Bequests Tax Free in USA<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The US tax code clearly states that property acquired by&nbsp;<strong>gift, bequest, devise, or inheritance<\/strong>&nbsp;is tax-free because it is not included in Gross Income. The meaning of property includes &#8220;money.&#8221; This is clear from plain reading of section 102 of the 26 U.S Code which is extracted below for your ready reference :<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong><em>26 U.S. Code \u00a7 102 \u2013 Gifts and inheritances<\/em><\/strong><\/h4>\n\n\n\n<p><em>(a)General rule<\/em><\/p>\n\n\n\n<p><em>Gross income does not include the value of property acquired by&nbsp;<\/em><strong><em>gift, bequest<\/em><\/strong><em>, devise, or<\/em><strong><em>&nbsp;inheritance<\/em><\/strong><em>.<\/em><\/p>\n\n\n\n<p><em>(b) Income<\/em><\/p>\n\n\n\n<p><em>Subsection (a) shall not exclude from gross income\u2014<\/em><\/p>\n\n\n\n<p><em>(1) the income from any property referred to in subsection (a) or<\/em><\/p>\n\n\n\n<p><em>(2) where the gift, bequest, devise, or inheritance is of income from property, the amount of such income<\/em><\/p>\n\n\n\n<p>So, any gift of \u201cproperty\u201d received by a U.S. person (a US citizen and tax resident of the USA ) is tax-free as per section 102(1) of the 26 U.S. Code (Internal Revenue Code).&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_types_of_gifts_or_bequests_are_not_tax-free_under_US_tax_law\"><\/span>What types of gifts or bequests are not tax-free under US tax law?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Receipt of property is tax-free, but not the income out of property. A&nbsp;<strong>gift of income<\/strong>&nbsp;from property is taxable under section 102(2) of the IRC.&nbsp;<\/p>\n\n\n\n<p>For example, say someone in India has gifted property that is put on rent or has term deposits with a bank. The rent receipt or interest that you receive will be taxable, but the value of the house property or the value of the term deposits will be tax-free.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_receipt_of_the_gift_or_bequests_reportable_in_the_US\"><\/span>Is receipt of the gift or bequests reportable in the US ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although US tax law exempts gifts of property, recipients are required to file&nbsp;<strong>Form 3520&nbsp;<\/strong>if the amount of the gifts exceeds&nbsp;<strong>$1,00,000.<\/strong><\/p>\n\n\n\n<p><strong>Time limit to File <a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-3520\" target=\"_blank\" rel=\"noopener\">Form 3520<\/a><\/strong><\/p>\n\n\n\n<ul>\n<li>Recipient NRI, a tax resident, must file Form 3520 by&nbsp;<strong>the 15th of April next to the tax year<\/strong>.&nbsp;<\/li>\n\n\n\n<li>They can seek an extension of time to file an income tax return. In that case, Form 3520 is due on 15th of October, next to the tax year.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_about_the_taxation_of_gifts_or_bequests_in_India\"><\/span>What about the taxation of gifts or bequests in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Any money or valuable properties received from relatives is tax-free under section 56(2)(x) of the Income Tax Act. The term &#8220;Relative&#8221; is defined under section 56(2) as under :&nbsp;<\/p>\n\n\n\n<ul>\n<li>&nbsp;(<em>i<\/em>) spouse of the individual;<\/li>\n\n\n\n<li>&nbsp;(<em>ii<\/em>) brother or sister of the individual;<\/li>\n\n\n\n<li>&nbsp;(<em>iii<\/em>) brother or sister of the spouse of the individual;<\/li>\n\n\n\n<li>&nbsp;(<em>iv<\/em>) brother or sister of either of the parents of the individual;<\/li>\n\n\n\n<li>&nbsp;(<em>v<\/em>) any lineal ascendant or descendant of the individual;<\/li>\n\n\n\n<li>&nbsp;(<em>vi<\/em>) any lineal ascendant or descendant of the spouse of the individual;<\/li>\n\n\n\n<li>(<em>vii<\/em>) spouse of the person referred to in clauses (<em>ii<\/em>) to (<em>vi<\/em>);<\/li>\n\n\n\n<li>So, gifts of property from relatives are generally tax-free in India under section 56(2) and in the USA under section 102(1).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_about_the_income_out_of_gifted_property_Will_that_be_taxed_in_two_years\"><\/span>What about the income out of gifted property? Will that be taxed in two years?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The income will be taxable in both countries, depending on the facts and circumstances of the case. In the case of double taxation, the good news is that there is a duty avoidance agreement between India and the USA.<\/p>\n\n\n\n<p><strong>Article 25 of the DTAA<\/strong>&nbsp;between the USA and India provides relief from double taxation of income. As per this Article, you may claim credit for tax paid on income earned in India that is also taxable in the USA (for a US Person, global income is taxable in the USA).<\/p>\n\n\n\n<p>The said article 25 of DTA is given below for reference :&nbsp;<\/p>\n\n\n\n<blockquote class=\"wp-block-quote\">\n<p><em>1. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the&nbsp;<\/em><strong><em>United States shall allow<\/em><\/strong><em>&nbsp;to&nbsp;<\/em><strong><em>a resident or citizen of the United States&nbsp;<\/em><\/strong><em>as a credit against the United States tax on income\u2014<\/em><\/p>\n\n\n\n<p><em>(a)&nbsp;<\/em><\/p>\n\n\n\n<p><em>the income-tax paid to India by or on behalf of such citizen or resident ; and<\/em><\/p>\n\n\n\n<p><em>(b)&nbsp;<\/em><\/p>\n\n\n\n<p>in ,,,,,,,,,,,,,,,,,.<\/p>\n<\/blockquote>\n\n\n\n<p>So, it can be concluded that even if the gifts, bequests and inherited property from your dear ones are tax free in USA and in India , the recipient has an obligation to intimate IRS through <strong>Form 3520<\/strong> . Further , when you sell those properties , capital gains are taxable in India as well as USA. However DTA signed between them provide relief from double taxation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Indians who go to the USA for work usually become tax residents on account of a physical presence test, i.e., staying there for more than 182 days. Many Indians continue to work in the USA for years. So, these Non-Residents of India (NRI) become Resident Aliens. This post explains the taxation of gifts, bequests or [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7606,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[3867],"tags":[],"amp_enabled":false,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7601"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=7601"}],"version-history":[{"count":3,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7601\/revisions"}],"predecessor-version":[{"id":7607,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7601\/revisions\/7607"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/7606"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=7601"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=7601"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=7601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}