FEMA compliance and tax tips for spousal gifts in India

Under the Foreign Exchange Management Act (FEMA), 1999, a resident Indian must repatriate any funds received from abroad, including gifts, to India within 180 days. While gifts from a spouse are exempt from Indian income tax, any income generated from investments made with these gifted funds is taxable in the husband's hands due to clubbing provisions. For instance, if ₹10 lakh is gifted and invested in shares yielding ₹1 lakh in dividends, that ₹1 lakh is taxable as the husband's income, while reinvested dividends are taxable to the wife. The husband can claim foreign tax credits for taxes paid abroad, and the wife must file a return in India, disclosing foreign assets in Schedule FA.