NRI child sending money to parents in India: Why a tax-free gift can still trigger an income-tax notice

An NRI may send money to his or her parents in India for household expenses, medical needs, investments, or other family requirements. While such gifts may not necessarily be taxable in the parents’ hands, the source of a large credit in their bank account may still come under the scrutiny of the Income-tax Department.

In such a situation, parents may need to explain the source and nature of the money received and establish that it was a genuine gift or family transfer.

So, when can a genuine money transfer from an NRI child lead to an income-tax notice, and what documents should parents keep ready to explain the transaction?

Can an NRI send money to parents in India without tax?

Money received by parents in India from their NRI son or daughter is generally not taxable as a gift, as gifts from specified relatives are exempt under the applicable provisions of the Income-tax law.

“A child falls within the prescribed definition of a ‘relative’ and therefore genuine financial support, gifts, or remittances from an NRI child to parents do not ordinarily give rise to any tax liability,” says CA (Dr.) Suresh Surana.

However, the absence of taxability does not automatically mean the transaction is immune from scrutiny.

The Income-tax Department may seek an explanation where the transaction appears unusual, inadequately documented, or inconsistent with the taxpayer's financial profile, he adds.

When can an NRI's money transfer to parents attract scrutiny?

According to Rohit Garg, Partner at Shardul Amarchand Mangaldas & Co., common situations include:

1. Large credits in parent's bank account:

A substantial foreign remittance, particularly where the parent's disclosed income is relatively modest, may invite an enquiry from the Income Tax Department regarding the nature and source of the credit.

Garg explains that under Section 102, parents of NRI children who receive a substantial money transfer in their bank account may get into trouble with the tax authorities if they can’t satisfactorily explain the source of this fund.

Section 102 provides that where an amount is found credited in an assessee's books and the assessee either offers no explanation about the nature and source of such credit and/or the explanation is not satisfactory, then such amount may be charged to tax as income of the assessee.

This is also relevant where the parents continue to maintain books of accounts.

2. High value investments made by the parents shortly after receipt of funds:

Where parents, after receipt of money, subsequently purchase property, securities or other investments, the tax department may seek explanation about the nature and source of such investments under Section 103.

Similarly, Section 104 gives power to tax authorities to seek explanation regarding the nature and source of assets, including money, bullion, jewellery, virtual digital assets, or other valuable articles.

3. Mismatch with information reported to the tax department:

Banks, mutual funds and other specified reporting entities report prescribed high-value transactions via their specified financial transaction (SFT) returns.

Mismatch of such information with information available with tax departments via the parents’ Annual Information System (AIS) may invite risk for further scrutiny.

4. Routing of funds through unrelated persons or multiple bank accounts:

There can be cases where the NRI child sends money to his/her parents via a different bank account which may not bear his name. In such cases, the tax department may seek clarifications / additional evidence regarding identity, source and genuineness.

5. Inability to establish the NRI child's source/capacity to make the gift:

Where upon questioning by the Income Tax Department, if the parents are not able to provide evidence regarding the child's source of income used for making such a gift, the amount received by the parents may be taxed in their hands under Section 102 - Section 104, as applicable.

Garg also highlights that if an NRI child is disguising granting of loan, consideration for services, repayment of a loan, etc. as a gift, then these transactions can also invite the attention of the Income Tax Department.

What documents should parents maintain when receiving money from an NRI child?

Maintaining a clear chain of evidence, which can help prove the transaction originated from the NRI child, can be one of the important practical safeguards in the event of a future enquiry.

As a parent of an NRI child, you should also maintain sufficient records to establish the identity of the NRI child, family relationship, source of the funds, and nature and purpose of the remittance.

According to Sudhakar Sethuraman, Partner, Deloitte India, recommended documentation includes:

• Bank account statements showing receipt of funds
• Foreign inward remittance certificates (FIRC), where available
• Copy of the NRI child's passport and overseas residency evidence, where relevant
• Proof of parent-child relationship (birth certificate, passport records or equivalent)
• Gift deed, gift declaration, or letter from the child where the transfer is intended as a gift
• Loan agreement where the transfer represents a loan
• Correspondence relating to the remittance
• Evidence of the NRI child's financial capacity and source of funds, particularly in the case of substantial transfers
• Records of utilisation of the funds, especially if used for acquisition of property or investments; and
• Copies of income-tax returns and supporting disclosures, where relevant

Is there any limit on the amount an NRI can send to parents in India?

There is no monetary ceiling under the Income-tax Act 2025 on a genuine gift received by a parent from his/her child.

“There are no income-tax restrictions on the amount that an NRI child may gift to his or her parents, provided the transfer is from legitimate funds and complies with applicable FEMA and banking requirements,” says Sethuraman.

However, parents should not interpret this to mean that a large transfer cannot be questioned.

What should parents do if they receive an income-tax notice?

Parents should not be alarmed merely because they have received a notice from the Income-tax Department.

The issuance of a notice does not automatically imply that the remittance is taxable or that any wrongdoing has occurred.

According to Surana, the department is simply seeking to verify the source, nature, and genuineness of a credit reflected in the recipient's bank account, particularly where the amount involved is substantial or forms part of a high-value transaction profile.

The parents should first verify the notice on the Income Tax Department’s e-filing portal, identify the transaction and tax year in question, and respond within the specified time. The reply should address the precise information sought in the notice.

Where the money was a gift, they should state the child’s name and relationship and other details sought, which may include the amount and date of each transfer, the account from which it was sent, the account in which it was received, and that no repayment or other consideration was due, he adds.

The response may be supported by documentation such as the parents’ bank statement showing the credit, bank remittance advice, gift declaration etc. If the department questions how the funds were subsequently used, the parents should also provide the relevant fixed deposit statement, investment record or property purchase documents, together with a reconciliation tracing the receipt to that transaction.

The parents should submit the reply and relevant attachments through the response facility specified in the notice, such as e-Proceedings, and retain the submission acknowledgement.