​High-net-worth individuals (HNIs) gifting foreign wealth to their non-resident Indian (NRI) children are currently under increased scrutiny by Indian tax authorities. This development stems from recent policy changes and enforcement actions aimed at enhancing transparency and compliance in cross-border financial transactions.

Income Tax Notices for High-Value Transactions: The Indian Income Tax Department has been issuing notices to NRIs involved in significant financial activities, such as purchasing property or investing in mutual funds, especially if they haven’t filed their Income Tax Returns (ITRs). Even if no tax is due, the absence of ITR filing in the presence of substantial transactions can trigger scrutiny .​

Removal of Nil TDS Certificates: The new Income Tax Bill, 2025, has eliminated the provision for ‘nil TDS’ certificates. Previously, taxpayers, including NRIs, could obtain these certificates to prevent tax deduction at source (TDS) when no tax liability existed. Now, only lower TDS certificates are available, necessitating TDS deductions even when there’s no tax liability. This change requires NRIs to file ITRs to claim refunds, potentially impacting liquidity .

Expanded Reporting Requirements: The Union Budget 2025 has introduced stricter tax rules for NRIs, including students and young professionals abroad. These changes encompass enhanced scrutiny of foreign income, expanded residency definitions for taxation, and potential impacts on tax treaty benefits. Individuals with overseas earnings now face tighter scrutiny and expanded reporting requirements .

Implications for HNIs and NRIs:

• Gift Taxation: While gifts from relatives are generally exempt from tax under Section 56(2) of the Income Tax Act, the increased scrutiny means that large transfers, even if exempt, may be examined to ensure compliance with reporting requirements.​
• Compliance Necessity: NRIs receiving substantial gifts or engaging in high-value transactions should ensure timely and accurate filing of ITRs, even if their income falls below the taxable threshold, to avoid notices and potential penalties.
• Professional Consultation: Given the complexities introduced by the new tax regulations, it’s advisable for HNIs and NRIs to consult with tax professionals to navigate the evolving landscape and ensure full compliance.

Staying informed and proactive in financial reporting and tax compliance is crucial in light of these developments.​

Sources