Many Indian-American taxpayers are confused about how to handle money gifts from their parents in India. Is it taxable? Does it need to be reported? Will the IRS audit you if you don’t disclose it?
This blog clears up the confusion and explains how to properly report foreign gifts from Indian parents to stay compliant and penalty-free with the IRS in 2025.
What the Law Says: IRC Reference
Under IRC Section 6039F, U.S. persons must report foreign gifts exceeding $100,000 in a calendar year from a nonresident alien (such as your parents in India). While these gifts are not taxable to the recipient, failure to report them can result in penalties up to 25% of the gift amount.
The key IRS form to report these gifts is Form 3520, titled “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.”
Are These Gifts Tax-Free? Yes, But…
- Tax-Free: Foreign gifts (from parents) are generally not included in gross income for the U.S. recipient under IRC §102(a).
- Reportable: Still, they are required to be disclosed to the IRS on Form 3520.
Example:
Let’s say you received the following in 2025:
- ₹30 lakhs ($36,000) from your father in January
- ₹50 lakhs ($60,000) from your mother in July
Total foreign gift: $96,000 Below threshold, no Form 3520 needed
But if your father sends another $10,000 in December, total gift = $106,000
Now you’ve crossed the $100,000 threshold → Form 3520 required
Step-by-Step: Reporting Foreign Gifts
- Determine Total Gifts from Each Foreign Donor
- Add up all cash, wire transfers, and property received during the year.
- Check if It Exceeds $100,000
- Applies per donor or combined if related
- File IRS Form 3520
- Due with your tax return (Form 1040), but filed separately to the IRS in Ogden, Utah.
- Complete Part IV of the form for foreign gifts.
- No tax is due just disclosure.
- Attach Explanation Letter (if needed)
- If the IRS questions the source, provide a simple letter stating the donor’s identity and that it was a gift (not income or loan).
- Keep Bank Records & Gift Deeds
- Maintain proof of gift in case of an audit.
Conclusion: Don’t Confuse “Tax-Free” with “Non-Reportable”
Receiving a gift from your Indian parents is not taxable, but once you cross the $100,000 threshold, Form 3520 is mandatory. Ignoring this form can lead to serious penalties. IRS treats non-reporting as a red flag for offshore evasion so don’t skip it.
Call to Action
To ensure you’re fully compliant with U.S. gift reporting laws, speak with Anshul Goyal, CPA EA FCA a U.S. Certified Public Accountant, IRS-authorized Enrolled Agent, and cross-border tax expert. He helps Indian-origin taxpayers navigate complex tax rules, including gift disclosures and IRS audits.
We recommend scheduling a meeting to review your specific gift transactions and file any required disclosures.
About Our CPA
Anshul Goyal, CPA EA FCA, is a licensed U.S. tax expert who represents clients before the IRS and state authorities. He specializes in cross-border tax issues, including U.S.-India tax treaty matters, foreign gift compliance, PFIC reporting, FATCA, and offshore voluntary disclosures.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Gift tax laws are subject to change, and individual circumstances vary. Always consult with a qualified tax professional such as Anshul Goyal, CPA EA FCA for tailored advice.
Top 5 FAQs
- Do I have to pay tax on gifts from my Indian parents?
No. Foreign gifts from nonresident parents are not taxable but must be reported if above $100,000.
- What is the deadline to file Form 3520?
It must be filed on or before the due date of your tax return, including extensions.
- What happens if I don’t file Form 3520?
You may face penalties up to 25% of the unreported gift amount.
- Does the $100,000 limit apply per parent or combined?
The threshold applies cumulatively to all related foreign persons (e.g., both parents together).
- Can I report gifts in Indian Rupees?
No. You must convert to USD using the IRS yearly average exchange rate or the actual rate on the date of receipt.