Gift Tax

This past tax season in the US presented us with many unique live cases and learnings, which we’d like to share with you. For example, imagine a scenario where someone makes a gift (a transfer of funds) to their spouse, and the spouse is a home-maker. How does that impact US and India returns from an income tax standpoint?

In India, gifts between spouses have no tax consequence and can be made tax free. However, the income earned on this gift will be taxed in the hands of the spouse with the higher income under the clubbing rules.

In the US, if both spouses are US citizens, gifts between spouses has no tax consequence using the Martial Deduction rules. If either spouse is a Non-US person, then your tax consultant should be alerted. If the donor is a Non-US person and recipient is a US person, there will be only information reporting. If the donor is a US person and the recipient is Non-US person, filing a Gift tax return is required if it exceeds a threshold of approximately $164,000 Depending on the gift size, the donor could use up his/her lifetime exemption and still not incur any taxes as a result.