Basic rule
Indian parents (non-US persons) gift money/assets to US-resident child:
India side: No gift tax. Gifts between "relatives" exempt under Section 56(2).
US side: Recipient does NOT pay income tax on gift. If gift exceeds $100,000 from a foreign individual in tax year, Form 3520 disclosure mandatory.
Why disclose if no tax?
IRS uses Form 3520 to track inflows of foreign wealth. Penalty for non-filing: 5% of gift value per month, capped at 25%. $200,000 unreported gift can cost $50,000 in penalties — for failure to disclose, not tax owed.
What counts toward $100,000?
Aggregate gifts from single foreign individual during year — or from all foreign individuals if "related" (siblings, parents).
$60,000 from father + $60,000 from mother = $120,000 aggregate. Form 3520 required.
Gifts from foreign corporation or partnership trigger Form 3520 at much lower threshold (~$19,000, indexed). Treated as taxable income to recipient.
When is Form 3520 due?
Same as Form 1040 — April 15, with auto-extension to October 15 (must request). Filed separately (not attached to 1040) at IRS Ogden.
Indian process — LRS
Parent remits via Liberalised Remittance Scheme (LRS) — $250,000 per Indian resident per FY. For larger gifts, multiple parents/siblings can remit.
Indian bank requirements:
- Form A2 (FX declaration)
- KYC of remitter and beneficiary
- Purpose code: "Gift" (S0301)
- No tax payable on remittance
Cost basis of gifted assets
If parents gift Indian shares or property:
- Your cost basis for US tax = parent's original cost basis (carryover basis)
- Holding period also carries over
- If you later sell, US capital gain computed from carryover basis
Opposite of inherited assets, which step up to FMV at death.
Reporting tip
For large gifts ($100K+), prepare:
- Bank wire documentation
- Statement from parent confirming gift nature
- Indian remittance documents (Form A2, LRS declaration)
Maintain 7+ years.
State implications
Few states (Connecticut, Minnesota) have own gift tax for residents — usually similar large exemption. Most states follow federal lead.
Planning tip — staggered gifts
If parents intend to gift $500,000, consider staggering across years to keep each year under $100K (under disclosure threshold) or just file Form 3520 once.
What if I'm gifting to Indian parents?
Reverse direction. If you're a US person gifting to foreign parent:
- Annual exclusion: $18,000 per recipient (2024) / $19,000 (2025)
- Above: counts against lifetime gift exemption ($13.61M)
- File Form 709 (US Gift Tax Return) if above annual exclusion
Indian parent pays no Indian tax on gift from "relative".
Common gift mistakes
- Missing Form 3520 for gift > $100K
- Assuming gift is "tax-free" therefore "report-free"
- Not documenting gift's nature
- Carryover basis confusion when later selling
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.