Gifting dollars to NRI kids? RBI's 180-day rule could trip wealthy Indians
New Delhi, Apr 29, 2025
If an NRI wishes to gift offshore funds, the funds must first be brought back to India and then remitted abroad. Non-compliance with this requirement can lead to penalties and legal complications.
In recent years, wealthy Indian families have increasingly looked at gifting offshore funds to their children settled abroad—for education, property purchases, or even investor immigration programs like the EB-5 visa in the U.S. But while gifting within families might sound like a personal matter, it’s now under tighter scrutiny from the Reserve Bank of India (RBI), especially when it involves foreign investments and remittance of large sums.
So, what's allowed, what's not, and how can you stay tax-efficient and compliant while gifting abroad?
Here’s a simple explanation of the rules, recent RBI concerns, and smart strategies—especially if you're planning to gift from offshore investments.
What triggered RBI’s Red Flag?
The RBI recently raised concerns about gifting the sale proceeds of offshore investments—like foreign mutual funds or real estate—directly to NRIs, especially when those funds are being used for:
U.S. investor immigration (EB-5 visa)
Overseas property acquisition
Large offshore transactions without transparency
The concern is that individuals may be circumventing repatriation rules by calling such wealth transfers “gifts.”
Let’s say you invested $250,000 abroad under the Liberalised Remittance Scheme (LRS) a few years ago. Now, that investment has matured or been sold, and you’ve realised a gain of $300,000.
Under RBI rules, once that money is realised, it must be brought back to India within 180 days, unless it’s reinvested abroad.
But there’s a catch: If you bring that money back and then want to send it abroad again as a gift to your child (an NRI), it will count against your LRS limit of $250,000 for the year. That’s your full quota gone.
So, what are some families doing?
The Loophole Strategy
Instead of repatriating the funds back to India as required, they keep the money abroad and simply "gift" the funds offshore to their children who are already NRIs. This skips the repatriation step, sidesteps the LRS limit, and preserves their quota for a fresh remittance of $250,000 in the same year.
It gets more structured: In some HNI families, each adult member — parents, grandparents, adult children — is assigned their own $250,000 LRS quota, which they all use each financial year. Over time, this multiplies the amount of money sent abroad — often for immigration, property purchases, or overseas investments — while technically staying within annual remittance limits.
Over time, they repeat this process, remitting new funds under LRS, investing or parking it abroad, and later "gifting" the proceeds to their NRI children, thereby moving significant wealth overseas while staying within technical compliance of yearly remittance caps.
Why this alarms the RBI
From the RBI’s perspective, this behavior could be viewed as:
Circumventing the spirit of LRS guidelines
Avoiding the repatriation mandate, which is meant to prevent idle foreign funds and speculative currency play
Using gifts to facilitate long-term offshore wealth migration that might have been restricted under stricter routes.
The real concern is that these offshore gifts may be masked repatriation avoidance, or worse, a shadow mechanism for transferring family wealth abroad.
What does the law actually say?
Under the Liberalised Remittance Scheme (LRS), every resident Indian can legally send up to $250,000 per financial year abroad for:
Permissible capital account transactions (e.g., investing in property, giving loans to relatives abroad)
Permissible current account transactions (e.g., gifts, donations, or maintenance of relatives abroad)
"Under FEMA, the gift of offshore investment sale proceeds (i.e., cash realized after selling a foreign investment) is treated as a current account transaction governed by the Liberalized Remittance Scheme (LRS). As per schedule III of the Foreign Exchange Management (Current Account Transaction Rules, 2000), an individual can gift up to USD 250,000 per financial year without RBI approval, following proper reporting through an Authorized Dealer Bank. However, as per FEMA (Overseas Investment) Regulations, 2022, if the proceeds arise from an Overseas Direct Investment (ODI), they must first be repatriated to India within 90 days before gifting. Non-compliance with repatriation or LRS limits can attract penalties under FEMA," said Prithiviraj Senthil Nathan, Partner, King Stubb & Kasiva, Advocates and Attorneys.
So yes—gifting is allowed under LRS, but there are conditions.
"For instance, money remitted for diversification of investment portfolio must either be brought back after disinvestment or reinvested in another asset class, but cannot be gifted per se because it technically doesn’t amount to “reinvestment”.
To clarify, residents are mandated to bring all foreign exchange earned or received by them to India and deposit in the bank account in India," explained Keshav Singhania, Head – Private Client, Singhania & Co.
What you can’t do: Gifting proceeds from offshore sales without repatriation
Let’s say you invested $200,000 abroad under LRS in 2020. In 2025, you sell those assets and now want to gift $100,000 from the proceeds to your child who lives in the U.S. Sounds harmless, right?
Here’s the catch:
RBI mandates that all sale proceeds from overseas investments made under LRS must be repatriated back to India within 180 days, unless reinvested abroad.
Gifting the funds directly from the foreign account is not allowed unless they have been reinvested.
Gifting is not classified as reinvestment—so you’re technically violating FEMA guidelines.
"The LRS Scheme mandates a resident Indian individual to either reinvest or repatriate sale proceeds received from investments made under the LRS Scheme. Thus, on the sale of any investment made under the LRS Scheme the received/realised foreign exchange, unless reinvested, has to be repatriated within a period of 180 days from the date of such realisation.
Therefore, if a resident Indian individual wishes to gift the foreign exchange from sale proceeds of such investments made under the LRS Scheme, he/she must first repatriate it back to India. Subsequent to such repatriation, the resident Indian may send a gift of money to any non-resident under the LRS Scheme, subject to the limit of USD 2,50,000 in a single financial year," explained Suhana Islam Murshedd, Partner, AQUILAW.
So what’s allowed: Repatriate the proceeds back to India, then use LRS to send up to $250,000/year as a gift to your NRI relative. That’s the clean route.
Tax Rules: When is a Gift Not Taxed?
Under Indian tax law, gifts to close relatives—defined as children, parents, siblings, grandparents, grandchildren, spouse—are fully exempt from tax, regardless of the amount.
But there's a catch:
If the donor is not a relative, any gift over Rs 50,000 is taxable in India for the receiver as "income from other sources" (Section 56(2)(x) of the Income Tax Act).
What about the recipient’s country?
In the U.S., the donor (if a U.S. person) may have to file gift tax forms if the amount exceeds $18,000 (2025 exemption limit).
In the UK, Canada, and others, inheritance and gift taxes vary widely, so local advice is crucial.
"For a tax point of view, gifting between close relatives is not a taxable event in India. One can freely gift money upto any amount between close relatives which include parents, sibling, children, grandparents and grandkids. However taxability of such gift in foreign jurisdictions varies from country to country. For. eg., in USA, a gift only upto $19,000 is exempt and any amount over and above is taxable," said Ankit Jain, Partner, Ved Jain and Associates.
Tax implications if an NRI receives a gift of offshore funds from a family member in India
"If an NRI receives a gift of offshore funds from a family member (who qualifies as a “relative” under Section 56(2)(x) of the Indian Income-tax Act, 1961), there is no tax liability in India on such receipt, irrespective of the gift amount. The Gift shall be taxable provided it is given by a Non-Relative and exceeds INR 50,000. The NRI who is receiving the Gift must comply with any reporting requirements in their country of residence, as some countries (like the U.S.) require disclosure of large foreign gifts. The donor must ensure the remittance follows FEMA and Liberalised Remittance Scheme (LRS) guidelines. Since a genuine gift is a capital receipt and not treated as "income", the NRI cannot claim Double Taxation Avoidance Agreement (DTAA) benefits, as DTAAs typically apply only to taxable income and not to gifts," explained Prithiviraj Senthil Nathan, Partner, King Stubb & Kasiva, Advocates and Attorneys.
Step-by-Step: How to gift offshore funds Legally
Let’s simplify this with an example:
Case: Mr. Sharma sells U.S. mutual funds (originally purchased under LRS) for $150,000 and wants to gift it to his daughter in Canada.
Here’s what he should do:
Repatriate the $150,000 back to India within 180 days.
After crediting it to his Indian bank account, use LRS to remit up to $250,000 as a gift to his daughter.
Declare the purpose as "gift to relative" in Form A2 to the authorised dealer bank.
Maintain records of the gift for compliance and future audits.
"A resident individual can make a gift to a close relative of the resident individual (as defined in the Companies Act, 2013). The gift amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c.
The gift amount must be within the overall limit of USD 250,000 per financial year, as permitted under the LRS for a resident individual.
HNI / Ultra-HNI families may also explore trust structure alternative with non-resident beneficiaries subject to proper hygiene checks and balances and ensuring trust vehicle is in compliance with RBI regulations and spirit of the law," said Singhania.
Smart Strategies for HNIs & NRI Families
Use the LRS legally—repatriate first, then gift.
Set up family trusts for structured wealth transfer, especially for multi-crore offshore plans.
For NRIs investing back in India or vice versa, consider jointly managed portfolios with clear documentation.
Work with a CA and legal advisor—cross-border gifting has too many moving parts.
"The strategy for HNI families would depend on what the concerned individual is looking at. In case the objective is to transfer funds abroad, then it will have to be ensured that the applicable provisions / regulations are followed. In case the donor does not want to pay any tax, then the said transfer can be made to a relative or on specified occasions for the donee like on the occasion of marriage, etc," said SR Patnaik, Partner (head - taxation), Cyril Amarchand Mangaldas.
"For NRIs planning to receive or give offshore gifts, it is crucial to ensure compliance with FEMA regulations, particularly the Liberalized Remittance Scheme (LRS), which allows remittances up to USD 250,000 per year from family members in India without RBI approval. Gifts from relatives are exempt from tax in India, but documentation such as a Gift Deed is essential to prove the relationship and legitimacy of the gift. NRIs should also be aware of the tax laws in their country of residence, as many require reporting large foreign gifts, though they are typically not taxed. DTAAs generally don’t cover gifts, but may provide relief in case of income-related issues. Maintaining proper documentation, understanding local reporting requirements, and consulting financial and tax advisors are key to avoiding penalties or scrutiny. For larger gifts, structuring the gift through a family trust or foundation may provide tax and wealth preservation benefits across generations," said Nathan.
[The Business Standard]
