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A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.
A new Rediff India Abroad feature:
My mother bought business/office property in 1964 in India and sold in the year 2000. What percentage capital gain tax does she have to pay to the income tax department in India?
-- Ramesh R Dhingra
You should have mentioned i) whether your mother is a Resident or an NRI; ii) The financial year and not the calendar year during which she sold the property; and iii) the net sale value she received.
Moreover, if the property was sold in 2000, tax was payable at that time. Now the interest and penalty on the unpaid tax amount could prove substantial.
Coming to the actual tax payable, Long-Term Capital Gain (LTCG) is to be computed by deducting from the full value of the consideration i) any expenditure incurred in connection with the transfer, ii) indexed cost of acquisition, and iii) indexed cost of improvement.
In the case of assets, acquired prior to April 1, 1981, the option of substituting the fair market value (FMV) in place of original cost is open to the investor. In other words, if the actual cost of acquisition is lower than FMV as on April 1, 1981, the investor may adopt the FMV to be his cost of acquisition.
On the other hand, if the actual cost of acquisition is greater than the FMV as on April 1, 1981, the investor may adopt such cost. The indexed cost of improvement based on 1981-82 only will be taken into account, whatever be the choice of the investor.
Incidentally, since your mother had bought the property in 1964, the April 1, 1981 provisions detailed above would be applicable to her.
LTCG is taken as a separate block and charged to tax at a flat rate of 20 per cent. The tax on all long-term capital gains which are chargeable to tax, can be saved by investing within six months the amount of capital gains in infrastructure-related bonds of NHAI or REC u/s 54 EC. The lock-in period is three years. The current interest rate is around 5.5 per cent and this is fully taxable.
Tax can also be saved by investing the capital gain amount in another property.
I am an Indian passport holder and I am in the processing of acquiring United States' citizenship. I am a retired central government employee of India and am getting pension also. If I become a US citizen, can I still get pension in India or not?
-- Vijay Kumar
You will continue to get the pension. Changing your citizenship does not affect your rights and obligations in any way.
I would like to know if a US citizen, after obtaining dual citizenship, will receive the same retirement benefits from the State if she or he chooses to live in India. Second, will someone lose Social Security benefits if s/he decides to live in India?
Finally, if one is interested in buying residential property in India, can one send money directly to the seller in installments?
-- Asha
1. The dual citizenship is unrelated with the retirement benefits receivable from India and also is unconnected with where she or he lives. As regards Social Security Benefits, since you still continue to be a US citizen, you should still get the benefits. However, kindly get this confirmed from a consultant in the USA.
2. Yes, the remittances from abroad towards purchase of property in installments are possible depending upon its acceptability to the seller.
Recently my father passed away, leaving behind some funds in two bank accounts (both State Bank of India and both accounts in his name) but in two different locations, in India. All three of his children are here in US.
How do we retrieve the funds from his bank accounts and can they be converted to US dollars? If the law does not permit that, could we gain control of the funds? Please advise with any solution under the circumstances.
-- Kalyan Sikdar
You should have mentioned if he has made a will. If not, has he appointed nominees for each of his bank accounts? If not, you will have to obtain a probate from a court of law which is a painful process.
Yes, all the NRI legatees are in a position to remit their respective shares abroad after taxes thereon, if any, are paid.
I am a naturalized US citizen. I sold a home in India for which I need to pay long-term capital gains tax. My uncle sent me an article which was published in the real estate section of an Indian newspaper. According to Article u/s 115E of Income Tax Act, I can pay long-term capital gains tax at 10 per cent. I request you please advise me.
-- C. S. Reddy
No, this is not correct. Section 115E is applicable to specific foreign exchange assets and investment income. Capital gains arising from the sale of a home in India are not from a foreign exchange asset as defined in the said section.
Therefore, the rate is 20 percent plus surcharge, if any, plus education cess.
I am thinking of acquiring Overseas Indian Citizenship. What would be effect on my investment in India, which at the moment is not taxed because of the non-resident status? Could you kindly let me know the effect with regards of acquiring property in India?
-- Swapnil Shah
There will be no changes in the taxability of your income in India because of your acquiring Overseas Citizenship of India and rights of your acquiring property in India. OCI merely seeks to bring a Person of Indian Origin (PIO) in line with an NRI as far as rights and obligations are concerned.
Therefore, once you get the OCI, you would have the same privileges as an NRI has vis-à-vis his investments and taxes in India.
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The authors may be contacted at wonderlandconsultants@yahoo.com