Parents in India paying towards your house deposit? What the ATO counts as a genuine gift

As a rule, a gift from parents is not income in Australia. The Australian Taxation Office says people generally do not declare “gifts from relatives given out of love”. For a gifted house deposit sent from India, the ATO’s guidance on money from family overseas is about proof: the evidence it expects when that money is called a gift or a loan. India has rules of its own for the parents who send it.

Those rules come with numbers. Under the Reserve Bank of India‘s Liberalised Remittance Scheme, a parent can send up to US$250,000 a financial year as a gift abroad. Tax is collected at source on remittances under the scheme of more than ₹10 lakh (₹1,000,000), in one amount or in total: 20 per cent when the money is for anything other than education or medical treatment.

When a gifted house deposit counts as genuine

The ATO set out what makes a gift or loan genuine in a note to Taxpayer Alert TA 2021/2, issued in September 2021. The alert itself is aimed elsewhere: at Australian residents who earn income offshore, leave it out of their returns and bring the money home disguised as a gift or loan from a related party overseas, typically a family member, a friend or another associate. The note says the alert does not cover a resident with no foreign assessable income who receives a genuine gift or loan from such a source.

Genuine has a meaning here. The documents must support calling the transaction a gift or a loan, the parties must behave in a way that fits the label, and the money must come from “funds genuinely independent of the taxpayer”.

How much paper is enough depends, the alert says, on the size of the gift and on whether gifts are a normal part of the relationship. Larger gifts, or gifts between people whose relationship is atypical, “might require a contemporaneous Deed of Gift”. The ATO would also expect evidence that the giver could afford the gift from their own resources, and records of the transfer. For a loan, documentation would typically include a properly documented agreement setting out the parties and terms, and the ATO would expect records showing the money advanced and repayments of principal and interest.

A deed is not the last word

A separate ATO page, written for people who use gifts or loans from family or friends overseas to fund a business or buy income-producing assets, lists supporting documents for a gift. They can include a deed of gift prepared by the donor and executed at the time, a copy of the donor’s passport or identity card, the donor’s bank statements showing the gift and their wealth before it, and any declarations the donor made at the time in their country of residence about the nature of the money. Even then, a deed “may not necessarily be accepted as conclusive evidence” that a gift is genuine. The Commissioner forms a view on all the evidence available.

The penalties in the alert are aimed at the disguise. Anyone who takes part in an arrangement like the one it describes may be liable for penalties of up to 75 per cent of the tax shortfall, on top of the tax avoided.

US$250,000 a year, and a PAN on every transfer

In India, the Reserve Bank’s master direction on the scheme, last updated in September 2024, lets any resident individual send up to US$250,000 in a financial year, April to March, as a gift to a person living outside India. The parent must quote a Permanent Account Number (PAN) and furnish Form A2, and all remittances under the scheme go through one branch of an authorised dealer that the parent designates.

Rupees can take another road. The same direction allows a rupee gift to a relative who is a non-resident Indian or a person of Indian origin, credited to their Non-Resident (Ordinary) Rupee, or NRO, account and counted against the same limit. The Reserve Bank’s FAQs on non-resident accounts, dated January 2025, say NRO balances can be remitted abroad up to US$1 million a financial year, subject to conditions.

Loans are narrower. The master direction permits loans, including rupee loans, to non-resident Indians who are relatives, while the gift permission covers anyone residing outside India. For a rupee loan, the direction requires it to be free of interest, run for at least a year and be credited to the NRO account, and the amount “shall not be remitted outside India”.

Collected on the way out, counted as tax paid

India’s Income-tax Act 2025 replaced the 1961 Act on 1 April 2026, and section 394 of the new Act now governs the tax collected at source on these remittances. The authorised dealer collects it on remittances under the scheme of “an amount or aggregate of the amounts exceeding ten lakh rupees” (₹1,000,000). The rate is 2 per cent for education or medical treatment, down from 5 per cent since 1 April 2026, and 20 per cent for any other purpose, a gift towards a house deposit included.

Section 390 treats tax collected at source and paid to the Central Government as a payment of tax on behalf of the person it was collected from.

Section 92 of the same Act treats money received without consideration as income from other sources once the total received in a tax year passes ₹50,000, but not money received from a relative, a term the Act defines to include any lineal ascendant, which takes in parents.

Neither country, as a rule, treats a parent’s gift as the child’s income. What each asks for is a record. The ATO’s test for a genuine gift is paperwork and behaviour that fit the label, and money genuinely independent of the person receiving it; India wants the parent’s PAN for every remittance, and treats any tax collected, once paid to the Central Government, as tax paid on the parent’s behalf.