Money From Parents in India: Gift Tax Rules, LRS and US Form 3520

A gift of money from your parents in India is not taxed in India, at any amount, because parents count as "relatives" under section 92(3) of the Income-tax Act, 2025 (the rule that used to be section 56(2)(x)). Your parents can send up to US$250,000 each per financial year abroad under RBI's Liberalised Remittance Scheme, with 20% TCS on the part above ₹10 lakh that they claim back in their own return. If you are a US tax resident, the gift is not taxable income in the US either, but once gifts from your parents add up to more than US$100,000 in a tax year you must report them on IRS Form 3520. Miss that form and the penalty can reach 25% of the gift.

Below: who counts as a relative, the two ways to move the money, how TCS works, when Form 3520 kicks in, and a worked example in rupees and dollars.

Is a gift from parents taxable in India?

No. Under the Income-tax Act, 2025, which applies from tax year 2026-27, money received without consideration is taxed as "income from other sources" once the total crosses ₹50,000 in a year, and then the whole amount is taxed, not just the excess. That is section 92(2)(m)(i). But section 92(3)(a) switches the rule off for money or property received "from any relative".

The exemption does not depend on where you live. An NRI son or daughter receiving money from resident parents gets the same treatment as a child living in Pune. There is no gift tax on the parents either: India has no separate gift tax on the giver.

The same section also exempts gifts received on the occasion of your marriage (from anyone), money received under a will or by inheritance, and money received in contemplation of the giver's death.

Who counts as a relative?

Section 92(5)(g) defines "relative" for an individual as:

• your spouse;
• your brother or sister;
• your spouse's brother or sister;
• a brother or sister of either of your parents;
• any lineal ascendant or descendant, maternal or paternal (parents, grandparents, children, grandchildren);
• any lineal ascendant or descendant of your spouse (your in-laws, for example);
• the spouse of anyone in the four items above, from your brother or sister onwards.

Cousins, nephews, nieces and friends are not on the list. A gift of ₹2 lakh from a cousin is taxable in your hands in India, unless it comes on your wedding.

How can parents send the gift abroad?

There are two routes. Which one fits depends on whose account the money sits in.

Route 1: parents remit directly under LRS

RBI's Master Direction on the Liberalised Remittance Scheme lets any resident individual remit up to US$250,000 in a financial year (April to March) "as gift to a person residing outside India". The limit is per person, so a mother and father can each use their own US$250,000. It covers all LRS purposes together: if your father has already sent US$50,000 for his own US shares that year, he has US$200,000 left for gifts.

The bank needs the parent's PAN, which is mandatory for every LRS remittance, and Form A2.

Route 2: rupee gift to your NRO account, then you repatriate

The same Master Direction allows a resident to make a rupee gift to an NRI relative by crossed cheque or electronic transfer, credited to the NRI's NRO account. This counts against the parent's US$250,000 LRS limit. For this purpose "relative" follows the Companies Act definition, which is narrower than the Income-tax one; parents and children are covered by both.

Money in your NRO account can then go abroad under RBI's Master Direction on Remittance of Assets: up to US$1 million per financial year, on documentary evidence. Your bank will ask for Form 145 (formerly Form 15CA) and, depending on the amount and nature of the remittance, a chartered accountant's certificate in Form 146 (formerly Form 15CB). The mechanics are in our guide to repatriating money from India, and the account differences are in NRE vs NRO accounts.

Route 2 suits families where the money is already headed to you in India anyway, or where you want to keep part of it in India. If the whole sum is going abroad, Route 1 is one step instead of two.

If you are newly abroad and still sorting out which Indian accounts to keep, start with our checklist for becoming an NRI.

Does TCS apply when parents gift money abroad?

Yes, above ₹10 lakh a year. Section 394(1) of the 2025 Act (Table, Sl. No. 7) has the bank collect TCS on LRS remittances once they exceed ₹10 lakh in total: 2% for education or medical treatment and 20% for every other purpose, which includes gifts. The department's TCS rates page applies the 20% to the amount remitted in excess of ₹10 lakh.

Three things people miss:

• TCS is collected on top. The full gift goes to you, and the TCS is debited from your parent's account in addition.
• It is the parent's tax credit, not yours. It shows against their PAN and they claim it in their own income tax return. If their tax for the year is lower, the excess comes back as a refund. Retired parents with modest pension income can wait a year or more for a large refund.
• The ₹10 lakh threshold is per parent, per year, across all LRS purposes. Splitting a gift between two parents uses two thresholds. Splitting across April and March does not help if both dates fall in the same financial year.

Our TCS on foreign remittance guide has the full rate card and how to claim the credit back.

Do I have to report a gift from my parents to the IRS?

Only once it crosses US$100,000 in the tax year. The IRS says a US person who receives more than US$100,000 from a nonresident alien individual or a foreign estate, treated as gifts or bequests, must report it in Part IV of Form 3520.

The rules that matter for Indian families:

• Gifts from related people are added together. The Form 3520 instructions say you must aggregate gifts from foreign persons you know are related to each other. Mother and father count as one pot. ₹50 lakh from each parent is judged as ₹1 crore, not two separate gifts.
• The gift is not income. The IRS describes a foreign gift as an amount the recipient excludes from gross income. Form 3520 is an information return: no tax is due on the gift itself. Interest or gains you earn on the money afterwards are taxable as usual.
• "US person" includes you on an H-1B or green card. If you meet the substantial presence test or hold a green card, you are a US resident for tax and the rule applies to you. Our US-India DTAA guide covers residency in more detail.
• When it is due. By the 15th day of the fourth month after your tax year ends, which is generally 15 April. If you extend your income tax return, the instructions have you tick a box on Form 3520 and give the form number of the return you extended. Those living and working outside the US get until the 15th day of the sixth month.
• Gifts from a foreign company or partnership have a much lower threshold: US$20,573 for 2026. That matters if a family business pays you, not your parents personally.

What is the penalty for not filing Form 3520?

Under section 6039F(c) of the US tax code, the IRS can charge 5% of the gift for each month the report is late, capped at 25% of the gift, unless you show reasonable cause. The IRS can also decide the income tax consequences of an unreported gift itself. On a US$126,000 gift, that cap is about US$31,500, for a form that would have cost nothing to file.

US rules depend on your full situation there, including your residency start date and any other foreign gifts in the year, so a cross-border CPA is worth it if the numbers are large or you missed a past year.

Worked example: ₹1.2 crore from both parents

Illustrative only. Exchange rate: ₹95.0194 per US dollar, the FBIL reference rate for 16 October 2026. Both parents are resident in India, have made no other LRS remittances in FY 2026-27, and the child lives in the US.

In Case A the parents together have ₹20 lakh of TCS sitting with the tax department until they file their returns. In Case B it is ₹12 lakh. Whether a gift is split across two financial years changes the TCS timing, not the total Indian tax, which is nil in both cases. You can check the day's rate on our exchange rates page.

Checklist before the money moves

• Confirm the giver is a "relative" under section 92(5)(g). Parents, grandparents, siblings and in-laws are. Cousins are not.
• Check each parent's LRS use so far this financial year (US$250,000 each, all purposes).
• Decide the route: direct LRS remittance, or rupee gift to your NRO account and repatriation under the US$1 million limit.
• Budget for TCS at 20% above ₹10 lakh per parent, and make sure your parents claim it in their ITR.
• Keep a short gift letter or declaration from each parent, the bank's remittance advice and Form A2.
• Add up all gifts from your parents in the US tax year. Over US$100,000 combined means Form 3520, Part IV.
• Once the money lands abroad, remember that interest and gains on it are taxable where you live.

Common mistakes

• Treating each parent as a separate US$100,000. The IRS combines gifts from related foreign persons. Two gifts of US$60,000 need a Form 3520.
• Thinking Form 3520 means a tax bill. It doesn't. Some people skip it out of fear of tax and end up with a penalty of up to 25% instead.
• Calling a cousin's or friend's money a gift. Outside the relative list, anything above ₹50,000 in a year is fully taxable in India.
• Forgetting that TCS is a refund to chase. Parents who don't file a return, or file without the TCS credit, simply lose that money.
• Moving NRO money without paperwork. Banks need Form 145, and often Form 146, before money leaves an NRO account. A gift from parents is not an exception.
• Mixing up the two "relative" definitions. RBI's rupee-gift-to-NRO rule uses the Companies Act definition. The income tax exemption uses section 92(5)(g). For parents and children, both are satisfied.

For everything else that changes when you live abroad, see the NRI planning hub.