--- title: "Gift of US Company Shares to an Indian Resident: FEMA, FCRA, Tax and US Law" date: 2026-09-29 author: "Rajesh Sivaswamy" url: https://ksandk.com/nri-legal-services/gift-of-us-company-shares-to-indian-resident/ --- # Gift of US Company Shares to an Indian Resident: FEMA, FCRA, Tax and US Law Posted On - 29 September, 2026 • By - Rajesh Sivaswamy ![](https://ksandk.com/wp-content/uploads/Gift-of-US-Company-Shares-to-an-Indian-Resident.webp) A person living outside India gifts shares of a US company to a family member or associate resident in India. No price is paid, no money leaves India, and there may be no commercial deal between them. It looks like a simple private transfer. Legally, it sits where several regimes meet. On the Indian side, the questions arise under the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Overseas Investment) Rules, 2022 (OI Rules), the RBI’s overseas investment directions, the Foreign Contribution (Regulation) Act, 2010 (FCRA) and Indian income tax, with continuing reporting of the foreign asset and any income from it. On the US side, the analysis can involve federal gift tax, securities-law transfer restrictions, the company’s charter and shareholder agreements, transfer-agent requirements, withholding on future dividends and, in some cases, US estate tax. Whether a resident Indian can receive foreign shares as a gift is only the first question. The analysis turns on who the donor is, what kind of US security is being gifted, when the gift was made, and through what legal and regulatory route the Indian resident acquires and then holds it. **Short answer:** a resident individual can generally accept shares of a US company as a gift from a person resident outside India under the OI Rules, and the gift does not use up the USD 250,000 Liberalised Remittance Scheme (LRS) limit. But whether FCRA applies depends on the donor’s citizenship, the gift may be taxable in India unless it comes from a relative, and the donee takes on continuing disclosure, valuation and US-law obligations that matter most when the shares are later sold. ## 1. Can a resident Indian receive foreign shares as a gift under FEMA? Yes. India’s foreign exchange regime has long allowed a resident individual to acquire foreign securities by gift. Under the pre-2022 framework, RBI’s general permission expressly covered a gift of foreign securities from a person resident outside India. The 2022 framework reorganised the regime into the OI Rules, Regulations and Directions. Under Schedule III of the OI Rules, a resident individual may acquire foreign securities by way of gift or inheritance, and specifically by gift from a person resident outside India “in accordance with the provisions of the Foreign Contribution (Regulation) Act, 2010 and the rules and regulations made thereunder” (Schedule III, paragraph 2(3)). There is no blanket prohibition on an Indian resident receiving shares of a US company as a gift. Acquiring foreign shares by gift is also a different thing from buying them with money remitted from India, which the next sections show matters for both LRS and FCRA. ## 2. Does it matter whether the donor is an NRI or a foreign citizen? It matters a great deal. “Non-resident” covers two very different donors: - **NRI donor:** an Indian citizen who lives outside India. - **Foreign-citizen donor:** a US citizen or other foreign national who is not an Indian citizen and lives outside India. For FEMA, both are persons resident outside India. FCRA draws a different line. The Ministry of Home Affairs has clarified that a contribution by an NRI who remains an Indian citizen, made from personal savings through normal banking channels, is not foreign contribution merely because the donor lives abroad. By contrast, a contribution from a person of Indian origin who has taken foreign citizenship is foreign contribution, and OCI or PIO status does not turn a foreign citizen into an NRI for this purpose. Where the gift is shares rather than cash, that distinction can decide the analysis. ## 3. Why does FCRA apply to a gift of foreign shares? The OI Rules tie gifts from persons resident outside India to FCRA compliance, which surprises many advisers. FCRA defines “foreign contribution” widely enough to cover the donation, delivery or transfer of a security, including a foreign security. So where the donor is a foreign source, a gift of US company shares can be foreign contribution. That does not make the gift prohibited. It means the transaction has to be run through FCRA. Section 3 of FCRA bars specified categories, such as election candidates, journalists, judges and government servants, from accepting foreign contribution. MHA guidance confirms that other individuals can generally accept it, and the Act has specific provisions for contributions from relatives. Before the FEMA analysis is finalised, document the donor’s: - citizenship; - residential status; - source of wealth; - relationship with the donee; and - method of transfer. ## 4. How does the FCRA relative exception work? Where the donor is a foreign citizen, the relationship between donor and donee becomes central. FCRA relaxes the position for contributions received from relatives, subject to reporting. Under Rule 6 of the FCRA Rules, as amended in July 2022, an individual who receives more than INR 10 lakh from relatives in a financial year must inform the Central Government in Form FC-1 within three months. FCRA uses the Companies Act definition of “relative”: spouse, parents, children and their spouses, siblings, and members of a Hindu undivided family. That is much narrower than the income-tax list. A gift from a US-citizen uncle or grandparent can therefore be tax-exempt in India yet fall outside the FCRA relative route. A gift from a foreign parent to an Indian child can therefore have a very different FCRA profile from a gift from a foreign business associate to an Indian shareholder, even when the shares are identical. Record the relationship expressly in the gift documents. ## 5. Does a gift of US shares count towards the USD 250,000 LRS limit? Generally no, where the acquisition falls within the gift and inheritance provision of Schedule III of the OI Rules. The RBI’s Overseas Investment Directions state that acquiring foreign securities by inheritance or gift under that provision is not counted towards the LRS limit, so it is not reported as an LRS remittance. | Acquisition route | LRS consequence | | --- | --- | | Purchase of US shares with funds remitted from India | LRS generally applies | | Gift from a person resident outside India under Schedule III | Not counted towards LRS | | Inheritance from a person resident outside India | Not counted towards LRS | | Gift by a resident Indian to a person outside India | Not permitted for overseas investments | The direction matters. The RBI Directions state that resident individuals may not transfer an overseas investment by way of gift to a person resident outside India. ## 6. Is the gifted holding ODI or OPI? Receiving shares by gift does not settle whether the holding is Overseas Direct Investment (ODI) or Overseas Portfolio Investment (OPI). The RBI Directions say an investment acquired by gift is classified as ODI or OPI according to the nature of the investment acquired. Under rule 2(q) of the OI Rules, any holding of unlisted equity capital of a foreign entity is ODI, as is 10% or more of a listed company’s equity, or a smaller listed stake that carries control. A listed holding below 10% without control is OPI, and once an investment is ODI it stays ODI. Gifts also get less latitude than inheritances. Paragraph 2(3) of Schedule III does not carry the “without any limit” language used for inheritance, and the relaxations for inherited shares do not extend to gifts. A gift that counts as ODI, such as any stake in a private US company, must therefore be in a foreign operating entity outside financial services, with no subsidiary controlled by the individual. The classification matters because ODI can bring a Unique Identification Number (UIN) and reporting through a designated AD bank, evidence of investment, Annual Performance Reports, and reporting of any later transfer or disinvestment. Gift is the mode of acquisition; ODI or OPI is the regulatory classification of what the donee ends up holding. ## 7. What changes if the US company is private? A gift of listed shares is operationally simple compared with a gift of shares in a privately held US corporation. For a private company, the donee may need to deal with: - the certificate of incorporation, charter and bylaws; - the shareholders’ agreement, rights of first refusal and other transfer restrictions; - board or investor consent; - securities legends and restricted-stock provisions; - transfer-agent requirements, the stock certificate or book-entry record, and the cap table update; - beneficial ownership information; and - US securities-law compliance. FEMA permitting the acquisition does not oblige the US company to register a transfer that breaches its charter or contracts. Review the company’s documents before the gift deed or transfer instrument is signed. ## 8. Are gifted shares free of US securities-law restrictions? Not necessarily. A bona fide gift is treated differently from a commercial sale, but gifted securities can stay subject to the restrictions that attached in the donor’s hands. If the donor holds restricted securities in a private company, the donee does not get unrestricted securities just because the transfer is a gift, and may inherit contractual restrictions, legends or resale limits. US counsel should confirm: - whether the shares are restricted; - whether a shareholders’ agreement or right of first refusal applies; - whether board consent is needed and the transfer to this donee is permitted; - whether a securities-law exemption is available; and - what evidence of transfer the company requires. ## 9. Does the donor pay US gift tax? For a donor who is a nonresident, non-US citizen, US federal gift tax generally does not apply to gifts of US-situated intangible property, and stock of a US corporation is intangible property for this purpose. The IRS confirms that such gifts are generally outside the US gift-tax regime. Gifts of US real estate and tangible property located in the US are treated differently. The position changes if the donor is a US citizen, US-domiciled for gift-tax purposes, subject to the expatriation rules, or otherwise within a special US transfer-tax regime. Establish the donor’s US tax status; do not infer it from where the donor lives. ## 10. Does US estate tax follow the shares? The gift ends the donor’s ownership, but not every US transfer-tax issue. US corporate stock is generally US-situs property for US estate-tax purposes when held by a nonresident non-citizen at death. Before the gift, the donor owns US shares; after it, the Indian resident does, and the estate-tax exposure moves with the shares. India and the US have no estate or gift tax treaty, so no treaty relief is available, and the estate of a nonresident non-citizen must file a US estate tax return where its US-situs assets exceed USD 60,000. Where the holding is valuable, the donee should build it into long-term succession planning. ## 11. Is the gift taxable in India? FEMA permission does not mean the gift is tax-free. Under the Income-tax Act, 2025, in force from 1 April 2026, section 92(2)(m), read with the exemptions in section 92(3), taxes money or property received without consideration, and “property” expressly includes shares and securities. Where the aggregate fair market value of shares received without consideration exceeds INR 50,000, that value can be taxed as income from other sources. The main exceptions, in section 92(3), cover receipts: - from a relative, as defined in section 92(5)(g); - on the occasion of marriage; - under a will or by inheritance; - in contemplation of the donor’s death; and - from specified entities and in other prescribed cases. So a gift from a foreign parent to an Indian child can be exempt under the relative exception, while a gift from an unrelated foreign shareholder can be taxed on the fair market value of the shares. The donor’s residence does not by itself create an exemption. ## 12. How are the US shares valued for Indian tax? Valuation is often the hardest part where the shares are in a private US company. Indian tax law requires fair market value to be determined under prescribed methods. For quoted shares, the market price gives an objective benchmark; for unquoted shares, the prescribed valuation rules (formerly Rule 11UA of the Income-tax Rules, 1962) apply. A private US company may have preferred and common stock, liquidation preferences, anti-dilution rights, several share classes, investor rights, restricted stock, minority and marketability discounts, recent financing rounds and convertible instruments. The Indian tax value should not simply be the last venture round price multiplied by the number of shares. A proper valuation memo looks at the rights attached to the class actually gifted. Because the shares are priced in US dollars and Indian tax is computed in rupees, the valuation file should also record the valuation date, the USD fair market value, the conversion method, the exchange rate and its source, the number and class of shares and the resulting INR value. Apply the same discipline on a later sale. A contemporaneous valuation file prevents many later disputes. ## 13. What is the donee’s cost and holding period on a later sale? The donee’s cost is generally not zero. Where a capital asset is received by gift, section 73 of the Income-tax Act, 2025 provides that the deemed cost of acquisition is what the previous owner paid, subject to statutory adjustments. The holding period also includes the time the previous owner held the asset (section 2(101)(c)), which can decide whether a later gain is short-term or long-term. Shares not listed in India, including US-listed and private US shares, become long-term only after 24 months. This matters most when the donee later sells to a private equity buyer. If a foreign shareholder gifts US shares to an Indian resident who then sells them, the Indian seller’s tax computation may need the donor’s historical cost and acquisition date. The gift deed alone will not provide them. The file should record: - the donor’s acquisition date and cost; - later capital actions such as splits, bonus issues and reorganisations; - the gift date; and - the donee’s eventual disposal date. ## 14. Must the shares be disclosed in the Indian tax return? Yes, where the donee files a return that requires foreign-asset disclosure. Shares of a US company are a foreign financial asset, and Indian returns require foreign assets to be reported in Schedule FA, subject to the residential-status and return rules. This is a separate compliance duty from paying tax. Leaving a foreign shareholding out of the return can create a problem even where the gift itself was not taxable. Keep a record of the company’s name, address and country, the nature of ownership, acquisition date, number of shares, cost or value, income and dividends received, and any later transfers, with supporting documents. See our note on [how CBDT uses AIS for foreign income reporting](https://ksandk.com/tax/what-why-how-cbdt-foreign-income-reporting-ais/). ## 15. How are future dividends taxed? Dividends from a US corporation to an Indian resident are generally US-source income. The default US withholding rate is 30%. Under Article 10 of the India-US tax treaty, the rate falls to 25% for an Indian resident individual; the lower 15% rate applies only to a company holding at least 10% of the voting stock. The shareholder claims the treaty rate by giving the payer Form W-8BEN. The dividend is also taxable in India, with credit for the US tax available under section 159 of the Income-tax Act, 2025, subject to the Indian rules. ## 16. What happens when the donee sells the shares? A later sale is a separate taxable and regulatory event. The Indian resident may face Indian capital gains, US capital-gains questions, FEMA disinvestment reporting, repatriation of the proceeds, tax documentation, foreign-asset disclosure and US transfer-agent requirements. On the US side, a nonresident alien’s gains from selling US corporate stock are generally not subject to US federal income tax unless the seller is present in the US for 183 days or more in the year, subject to exceptions. In practice, someone present for 183 days or more is usually a US resident anyway. The main exception is FIRPTA: gains on shares of a US real property holding corporation are taxable, unless the shares are a regularly traded class and the holder owned 5% or less. Private stock in such a company gets no exception, so a private US company with significant US real estate needs a separate FIRPTA review. Under FEMA, the fact that the shares were a gift does not remove the obligations on disposal. The sale needs to be checked under the OI Rules and Regulations: whether the holding is ODI or OPI, whether the disposal is permitted, pricing where applicable, reporting, repatriation, designated AD bank involvement and tax documentation. Treat the compliance as a lifecycle: gift, acquisition, holding, income, disclosure, sale and repatriation. ## 17. What should a gift file contain? For a high-value gift of US shares, keep a complete file. | File section | Documents | | --- | --- | | Donor | Passport, citizenship, tax residence, FEMA residential status, US tax status, source of wealth, relationship with donee | | Shares | Certificate or electronic ownership statement, cap table, class and number of shares, acquisition history, shareholders’ agreement, transfer restrictions, board approvals, ROFR waiver if needed | | Gift | Gift deed, declaration of no consideration, relationship declaration, transfer date, valuation, donee’s acceptance, evidence of delivery or registration | | Indian regulatory | AD bank correspondence, OI reporting, UIN where applicable, FCRA analysis, Form FC-1 where applicable, supporting declarations | | Tax | Fair market value report, exchange-rate evidence, donor’s original cost, tax returns, Schedule FA disclosure, dividend statements, foreign tax credit papers | ## 18. How do NRI and foreign-citizen donors compare? | Issue | NRI donor | Foreign-citizen donor | | --- | --- | --- | | FEMA acquisition by Indian resident | Permitted under OI Rules | Permitted under OI Rules | | LRS limit | Not counted for a Schedule III gift | Not counted for a Schedule III gift | | FCRA | Gift from personal savings generally not foreign contribution | Potentially foreign contribution | | FCRA relative exception | Relevant if applicable | Often decisive | | Indian tax on receipt | Taxable above INR 50,000 unless an exception applies | Same | | Relative exception (tax) | Available for a statutory relative | Available for a statutory relative | | Valuation | Needed for tax where applicable | Same | | Schedule FA | Potentially required | Potentially required | | US gift tax | Depends on donor’s US status | Generally none for a nonresident non-citizen gifting US stock | | US securities law | Applies | Applies | | Future US dividends | 25% US treaty rate for individuals, W-8BEN | 25% US treaty rate for individuals, W-8BEN | | Future sale | Indian FEMA and tax | Indian FEMA and tax | | Estate planning | US-situs issues | US-situs issues | ## 19. What about gifts made before August 2022? Historical gifts need a date-specific analysis. Before the OI framework took effect on 22 August 2022, the regime ran on FEMA and the earlier overseas investment regulations and master directions, which also allowed a resident individual to acquire foreign securities by gift from a person resident outside India. The 2022 framework kept that principle but made it more structured and expressly tied gifts from persons resident outside India to FCRA compliance. Do not apply today’s requirements mechanically to an old gift. Identify the exact date of the gift and the law in force on that date, reconstruct the transaction, identify the reporting required at the time, and assess whether any historical default can still be regularised. ## 20. Is a gift invalid if no RBI form was filed at the time? Not automatically. Separate three questions: 1. Was the acquisition itself permitted? 2. Was reporting required? 3. If reporting was required but not done, can the default be regularised? The current RBI framework provides for delayed reporting with late submission fees in appropriate cases. A reporting default is not the same as absence of ownership. In an M&A context, reconstruct the historical position and identify the regularisation route. ## 21. What should a PE buyer ask about gifted US shares? When gifted US shares are later sold to a private equity sponsor, the historical issues surface. The buyer’s India and US diligence should ask: - When were the shares first acquired, and by whom? - When was the gift made, and was the donor an NRI or a foreign citizen? - Did FCRA apply, and was the gift reported? - What was the valuation on the gift date, and what was the donor’s cost? - What is the current tax basis? - Were the shares disclosed as foreign assets in Indian returns? - Was the gift registered with the US company, and is the cap table accurate? - Are there transfer restrictions, or are the shares restricted securities? - Are there outstanding options or conversion rights? - Have dividends been received, or any later transfers made? ## 22. What is the practical takeaway? A gift of US shares to an Indian resident is at once a foreign exchange transaction, an overseas investment, potentially an FCRA transaction, an Indian tax event, a foreign-asset reporting event, a US corporate-law transaction and potentially a US transfer-tax event. Each regime asks its own question: | Regime | Question it asks | | --- | --- | | FEMA | Can the Indian resident acquire and hold the foreign security? | | FCRA | Is the transfer foreign contribution, and if so, can it be received and what must be reported? | | Indian income tax | Is the value received taxable, and what is the donee’s future tax basis? | | US law | Can the shares legally be transferred, what restrictions apply, and what are the US tax consequences? | | Corporate law | Has the transfer been validly registered in the company’s records? | For a high-value gift, a simple gift deed is not enough. Support the transaction with a contemporaneous valuation, evidence of the donor’s citizenship, tax residence and ownership, corporate approvals, FEMA and AD bank documents, an FCRA analysis where relevant, Indian tax reporting and US transfer documents. For historical gifts, reconstruct the law on the gift date before concluding that a filing was or was not required, and keep separate the validity of the acquisition, the reporting compliance and the ability to regularise a past default. The test comes years later, when the shares are sold, pledged, transferred or rolled into a private equity deal and the ownership, tax basis, disclosures and records all have to hold up. ## 23. How can KSK help? King Stubb & Kasiva advises families, founders and investors on cross-border gifts of foreign securities, from FEMA and FCRA structuring and valuation to Indian tax reporting and later sales. We work with US counsel on the transfer-tax and securities-law side. US families and companies can reach us through our [USA Desk](https://ksandk.com/usa-desk/), and our [corporate guide for US companies in India](https://ksandk.com/usa-desk/company-setup-in-india-for-us-companies/) covers the India-US tax treaty rates in more detail. ## Frequently asked questions ### Can an NRI gift shares of a US company to a resident Indian? Yes. A resident individual can acquire foreign securities by gift from a person resident outside India under the Overseas Investment Rules, 2022. A gift from an NRI who is an Indian citizen, out of personal savings, is generally not foreign contribution under FCRA. ### Is a gift of foreign shares from a relative taxable in India? A gift from a relative, as defined for income-tax purposes, falls within the exemptions in section 92(3) of the Income-tax Act, 2025, so it is generally not taxed on receipt. Check FCRA separately, because its definition of relative is narrower. The donee still inherits the donor’s cost and holding period for a later sale and must disclose the shares in Schedule FA. ### Does receiving US shares as a gift use up the LRS limit? No. RBI’s Overseas Investment Directions state that acquiring foreign securities by gift or inheritance under Schedule III of the OI Rules is not counted towards the USD 250,000 LRS limit. ### Does the donor have to pay US gift tax? A nonresident donor who is not a US citizen generally pays no US gift tax on a gift of US corporate stock, because it is intangible property. 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