Gifting Money to NRI Children? Why the RBI’s 180-Day Rule Is a Hidden Hurdle

In today’s globalized world, it is quite common for Indian parents to financially support their children who have settled abroad—whether for educational expenses, property purchases, or even residency programs like the investor visa in the United States. However, what many families fail to realize is that gifting money internationally involves more than just a simple bank transfer. The Reserve Bank of India (RBI) has put in place a framework of strict rules, particularly when the funds involved originate from overseas investments. Ignorance of these rules can attract significant penalties under the Foreign Exchange Management Act (FEMA).

To understand why this matters, consider a hypothetical case of Mohan, a businessman based in Mumbai. In 2022, Mohan invested $200,000 in U.S. stocks under the Liberalised Remittance Scheme (LRS). By 2025, his investments had appreciated to $250,000. Mohan wished to gift the entire amount to his daughter Devika, who is currently pursuing her studies in Canada. His plan was to sell the stocks and transfer the proceeds directly from his U.S. brokerage account to Devika’s Canadian bank account. Mohan believed this was a straightforward and compliant method.

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Unfortunately, according to the RBI regulations, this is not allowed. The RBI mandates that any proceeds from overseas assets purchased under LRS must either be brought back (i.e., repatriated) to India within 180 days or reinvested abroad. Importantly, gifting the amount is not considered a valid reinvestment. Therefore, if Mohan proceeds to directly gift the $250,000 from his U.S. account, he would be violating the 180-day repatriation rule. Moreover, he would also be bypassing the annual LRS limit of $250,000, since the original investment already counted toward his LRS quota.

This is not a rare occurrence. Many wealthy families try to work around these restrictions by using creative but non-compliant strategies. One common tactic is to keep the money offshore after selling the asset, rather than repatriating it to India. Later, they transfer the funds to their NRI children directly from foreign accounts. Another popular method involves pooling funds abroad by utilizing the LRS limits of multiple family members—parents, grandparents, and even adult children. While these techniques may appear clever, they are risky and increasingly fall under regulatory scrutiny. The RBI has been tightening enforcement, and violations of FEMA can result in fines, legal action, and restrictions on future remittances.

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Returning to Mohan’s case, the proper way to gift the funds to his daughter would involve several steps. First, he would need to sell the U.S. stocks and receive the $250,000 in his brokerage account. Next, he must repatriate the full amount to his Indian bank account within the stipulated 180 days. Once the funds are in India, Mohan can then remit the money to Devika under the LRS, marking it clearly as a "gift to relative." It is also essential for him to maintain complete documentation of the stock sale, the repatriation transaction, and the gift deed to be compliant in case of future audits. If Mohan intends to send more than $250,000 in a given year, his wife can separately utilize her own LRS quota, allowing the family to legally transfer up to $500,000 annually.

There are also tax considerations to keep in mind. Under Indian law, gifts from parents to children are fully tax-exempt, regardless of the amount. However, if the giver is not a close relative—such as a friend—any gift above ₹50,000 becomes taxable in the hands of the recipient under Section 56(2)(x) of the Income Tax Act. In the recipient’s country, tax treatment can vary. For example, in the U.S., any gift above $18,000 (as per the 2025 limit) must be reported to the IRS, though it may not necessarily be taxed. In countries like the UK or Canada, certain gifts could be subject to inheritance or other taxes, depending on local laws. Hence, it is always advisable to consult a cross-border tax advisor before executing such transfers.

If the RBI discovers a violation—such as Mohan gifting the $250,000 directly from his U.S. account without repatriation—it could impose financial penalties under FEMA. The RBI may also block further remittances under LRS from Mohan’s account until compliance is restored. Worse still, the transaction could trigger tax scrutiny in both India and the recipient’s country. Repeated violations may escalate to more serious legal consequences.

To avoid such complications, families should adopt prudent strategies. Always bring the sale proceeds of foreign investments back to India before using them for gifting. For significant wealth transfers, establishing a family trust can offer both flexibility and compliance. Utilizing the individual LRS limits of multiple family members is another legal method to transfer larger sums. And above all, ensure that all transactions are well-documented with proper bank records, gift deeds, and tax filings.

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In conclusion, gifting money to NRI children is both legal and common among Indian families. However, the RBI’s 180-day rule for repatriating overseas sale proceeds is a critical regulation that cannot be overlooked. The correct approach involves repatriating funds within the prescribed timeframe, using the LRS route for outward gifts, and keeping all necessary records. By adhering to these rules, families can ensure a smooth and penalty-free transfer of wealth, securing their financial legacy while staying on the right side of the law.

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