Will cross-border crypto gifts trigger Indian taxes? | Mint

I have been residing in the UAE for the past 25 years and carry on my business here. On the occasion of my 50th birthday, a couple of my Indian cousins have gifted me USTD into my private wallet here from theirs in India, after I shared my private key with them. Do I have to pay any tax in India on these gifts?

– Name withheld on request 

Can a non-resident Indian receive cryptocurrency as a gift from cousins in India without attracting Indian tax? The answer lies in a mix of tax law interpretation and cross-border regulatory gaps.

India’s foreign exchange laws currently do not specifically regulate the cross-border transfer of cryptocurrencies, making it unclear whether such transfers are legally permitted.

Under Indian tax law, receiving cryptocurrency as a gift or for less than its fair market value (where the difference exceeds ₹50,000) is treated as income under section 56(2)(x). 

Importantly, cousins are not classified as ‘relatives’ under this section, so gifts from them typically don’t qualify for the exemption available for gifts received from close family members.

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However, this tax rule only applies if the income is received in India, accrues or arises in India, or is deemed to do so. Since you’ve been living in the UAE for over 25 years, you’re treated as a non-resident under Indian tax laws.

Meaning of ‘accrue’ and ‘arise’

To assess whether income accrues in India, it’s important to understand what “accrue” or “arise” means under tax law. Typically, “accrue” implies a legal right to receive income—usually based on an obligation from another party. But in the case of a gift, no such obligation exists, since it’s voluntary.

However, section 56(2)(x) of the Income Tax Act is a deeming provision. This means it can treat the mere receipt of property—without or below fair market value—as taxable income, even if there’s no underlying legal right to receive it.

The term “arise” refers to the point when income actually comes into existence. Under this section, income is considered to arise the moment the asset (in this case, cryptocurrency) is received.

Also read: Will a cross-border share swap trigger tax in India?

As you received the USDT outside India, both the arising and receipt occur outside India. Moreover, the deeming provision under section 9(1)(viii), which relates to gifts of money by a resident to a non-resident, would not apply in your case. Therefore, the receipt of USDT from your cousins will not give rise to income taxable in India.

Moreover, under Article 22 of the India–UAE Double Taxation Avoidance Agreement (DTAA), any “other income” (like gifts) is taxable only in the UAE. As a UAE tax resident, you wouldn’t owe tax in India on this gift.

Also read: You can now gift securities online. Here’s how.

Harshal Bhuta is partner at P. R. Bhuta & Co. CAs