NRI Property Gift Guide for Bangalore Apartments

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

When a Non-Resident Indian who owns a Bangalore flat -- acquired either during their residency in India or purchased from abroad as an NRI -- decides to gift the flat to a resident Indian family member (a parent, sibling, spouse or adult child), the gift is permitted under FEMA's general exemption for transfers to family members without monetary consideration but requires a registered gift deed in India, TDS compliance by the donee under Section 56(2)(x) of the Income Tax Act and the donor's compliance with the FEMA repatriation rules if the flat was originally purchased with repatriable funds.

Is an NRI Permitted to Gift Indian Property Under FEMA?

FEMA's Schedule III to the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 permits an NRI to gift immovable property in India to a person resident in India or to another NRI or OCI who is a relative. The FEMA definition of "relative" for this purpose follows the Companies Act 2013 definition -- which includes parents, siblings, spouse, children and their spouses. A gift to a non-relative Indian resident or to a non-relative NRI requires RBI's prior approval.

The FEMA gift permission does not require the donor NRI to obtain an RBI NOC -- the gift falls within the general permission. However, the donor must ensure: the gift deed is executed and registered in India as required by the Registration Act; the gift does not violate any conditions attached to the original acquisition (for example, if the flat was acquired under an earlier FERA scheme with restrictions on transfer); and the NRI has complied with all FEMA requirements for the original acquisition (including the annual repatriation report if applicable).

What Documents and Steps Are Required for the Gift Deed Execution?

1. The NRI donor should appoint a Power of Attorney holder in India if they cannot personally travel to India to execute the gift deed at the sub-registrar -- the POA must be executed before an Indian consulate or a notary in the country of residence and apostillized (for Hague Convention countries) or legalised (for other countries).

2. Execute the gift deed in India -- the gift deed should be drafted by a lawyer specifying the donor, the donee, the property details, the gift being voluntary and without consideration and the donor's NRI status and FEMA compliance.

3. Register the gift deed at the sub-registrar in whose jurisdiction the property is located -- both the donor (or their POA holder) and the donee must appear before the sub-registrar.

4. Pay stamp duty on the gift deed -- Karnataka's stamp duty on gift deeds to family members is reduced (compared to sale deeds) but not zero. The specific stamp duty depends on the relationship and the property's guidance value.

5. The donee should confirm the income tax position -- if the gift is from a relative (as defined in Section 56(2)(x)), the gift is tax-exempt. If the gift is from a non-relative, the donee must declare the flat's fair market value as income in the year of the gift.

Q1. What is the FEMA definition of a "relative" for the purpose of an NRI gift?

FEMA's gift permission for NRIs references the definition of "relative" in the Companies Act 2013, which includes: spouse; father, mother (including step-father and step-mother); son, daughter (including step-son and step-daughter); son's wife, daughter's husband; brother, sister (including step-brother and step-sister); and their spouses. A first cousin, a grandparent or a friend is not a "relative" for this purpose -- gifts to them require RBI prior approval.

Q2. Does the NRI gift attract capital gains tax for the donor?

A gift of immovable property is not treated as a transfer for capital gains purposes for the donor under Section 47 of the Income Tax Act -- gifts are specifically excluded from capital gains. The donor NRI does not pay capital gains tax on the gift. Capital gains tax applies only when the donee subsequently sells the property -- at that point, the donee's cost of acquisition is the donor's original cost (not the fair market value at the time of the gift).

Q3. What stamp duty applies to a gift deed to a family member in Karnataka?

Karnataka's stamp duty on gift deeds to specified family members (parents, children, siblings, spouse) is reduced -- typically Rs 5,000 fixed duty regardless of the property's value for transfers between specified relatives. This is significantly lower than the 5-6.5% stamp duty on a standard sale deed. The specific stamp duty for the specific relationship must be confirmed from the current Karnataka Stamp Act schedule or the sub-registrar.

Q4. If the NRI originally purchased the flat with foreign currency remitted from abroad, can the donee resident Indian sell the flat and repatriate the proceeds?

The donee resident Indian who received the flat as a gift cannot automatically repatriate the sale proceeds abroad -- a resident Indian's property sale proceeds are not freely repatriable. The repatriation of the proceeds (to the NRI donor's original home country) requires RBI's specific approval if the donee wants to remit the proceeds abroad. Within India, the donee can use the proceeds freely.

Q5. Can the NRI gift a flat that has an outstanding home loan?

Gifting a flat with an outstanding home loan requires the bank's prior consent -- the bank's MODT is a charge on the flat and the transfer (even by gift) requires the bank to agree. The bank typically requires either: the outstanding loan to be discharged before the gift; or the donee to take over the loan as the new borrower (with the bank's credit approval). A gift deed executed without the bank's consent on a mortgaged flat is an unauthorized transfer that violates the loan agreement.

Q6. What is the Section 64 clubbing provision for gifts to spouses?

Section 64 of the Income Tax Act provides that income arising from assets transferred to a spouse without adequate consideration is "clubbed" with the transferor's income -- the income is taxed in the donor's hands, not the donee's. For an NRI who gifts a Bangalore flat to their resident Indian spouse, the rental income from the flat (or the deemed annual value if unrented) is clubbed with the NRI's income and taxed accordingly.

Q7. Can the NRI gift only a portion of the flat (say a 50% share)?

Yes -- the NRI can gift any portion of their ownership interest. A gift of a 50% undivided share converts the donee into a co-owner with the NRI (or with the NRI's nominee) -- the two become joint owners of the flat. The gift deed should clearly specify the percentage share being gifted. The donee then holds their share as a co-owner with all the rights and limitations of co-ownership.

Q8. Does the NRI need to report the gift to FEMA authorities?

The FEMA general permission for gifts to relatives does not require a specific post-gift report to the RBI. However, the NRI's annual Foreign Liabilities and Assets Report (FLAR, if the NRI is required to file one) should reflect the reduction in their Indian property holdings after the gift. The donee resident Indian who received the flat as a gift should also disclose the gift in their income tax return.

Q9. What if the NRI donor dies before the gift deed is registered?

A gift becomes complete only on registration -- until the gift deed is registered, the gift is incomplete and the property still belongs to the donor. If the NRI donor dies before the gift deed is registered, the incompletely gifted property becomes part of the donor's estate and passes to the legal heirs under succession law -- the intended donee has no legal claim to the property from an unregistered gift deed.

Q10. How does Legal Brigade assist NRIs with gifting their Bangalore flat?

Legal Brigade confirms the FEMA general permission applicability for the specific donor-donee relationship, drafts the gift deed with the correct NRI FEMA compliance declaration, manages the POA apostillization and registration if the NRI cannot travel, confirms the Karnataka stamp duty for the specific family relationship, advises on the Section 56(2)(x) income tax exemption and the Section 64 clubbing position for spouse gifts and manages the sub-registrar registration of the gift deed.

An NRI wanting to gift your Bangalore flat to a parent, sibling or child in India -- uncertain about the FEMA compliance, the gift deed registration process and the tax implications for the donee? Legal Brigade confirms the FEMA position, drafts the gift deed and manages the registration. WhatsApp → wa.me/8497029999

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