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April 26, 2000

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"How do I set up a fund to promote rural education?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

I am a US citizen. I bought a flat in Hyderabad in September 1999. I haven't fully paid for it. Part of the flat was funded with my money (earned in the US, of course) and part of it was funded by a loan from the State Bank of India, which I haven't repaid yet. I have an NRE account which I use to pay off the monthly payments to the State Bank of India.
Do I have to pay any propety tax or income tax? If one of my relatives/friends has a power of attorney, can they pay these taxes on my behalf?

I have been in the US for the past three years. Last year, I took a loan of Rs 5,00,000 in India to build a house for my parents. The house is in my father's name. I am now paying a regular monthly installment towards the principal and interest. Can I show this in my taxes?

Meena K S

  • You are not liable for any income tax on the ownership of any property. However, if you let out the property on rent, the rental income is subject to tax after certain deductions. This includes deductions on account of repayment of housing loan. You can claim the deduction once the property is complete and the completion certificate is received. If the property is used for self occupation, then there is no tax liability.
  • You would be eligible for a rebate up to 20 per cent under section 88 of the Income Tax Act, 1961, towards the principal repayment subject to maximum limits of that section. Further, you would be eligible for a deduction under section 24 of the Income Tax Act, 1961, for the interest paid during the year (maximum Rs 30,000). For house acquired or constructed between April 1, 1999 and March 31, 2000 would be eligible to a deduction up to Rs. 75000.
  • You would be required to obtain a certificate from the housing finance company as to the break-up of the repayment of the principal and interest paid during the period ending on the March 31. This certificate is to be attached along-with your income tax returns for the year.
  • You can appoint any person as your attorney by giving him a power of attorney and authorise him to file your return, pay taxes etc.
  • Property tax is payable to the municipal corporation. This is allowed as a deduction for arriving at the taxable income. Capital gains earned on sale of the property attracts tax.

I am an Indian presently employed in Kuwait. My money is in an NRNR deposit. I need to buy a house in the village but I heard that you cannot withdraw the amount kept in the NRNR since it will attract 2 per cent tax. I need the money urgently since I am planning to authorise my wife to use the already available money to pay for the house instead of applying for a loan and paying more.

You can surely withdraw your own money that is kept with a bank. There is no tax on withdrawal of deposit. But there is a RBI directive to banks that in the event of premature withdrawal of deposit, they ahve the option to deduct 1 per cent from the rate applicable for the relevant period of deposit. For instance, if you have placed a deposit for 3 years and the rate of interest applicable is 10.5 per cent. Now you withdraw the deposit after 1 year and the applicable rate of interest for 1 year is 8 per cent. The bank will pay you interest at the rate of 7 per cent only for the entire period of the deposit.

I have been abroad since mid November 1999. I was also out of India on a daily allowance basis for December 1998 & January 1999. Other than that I have been in India. When working in India I received a post-tax monthly salary of Rs 11,000. Now, it has dropped to Rs 7,500. My allowance here is $1,860 after tax deduction at source.
I will be filing tax-returns in India in April/May 2000 for the previous assessment year, but will not be returning to India by that time. Do I have to declare my income in USA in these returns or is it declared after I return. Is there any procedure for re-entry within six months?

Amit Karkhanis

From the data provided by you, your residential status is not very clearly mentioned. However, a resident is taxable on his global income and NRI would be taxed for all income arising or accruing or deemed to be arising or accruing in India and income received or deemed to be received in India. Hence in your case as your contract of employment is with an Indian company, the income earned by you in India as well as USA is subject to tax in India.
India has double taxation avoidance treaties with various countries, to avoid the taxation of income earned by assessee twice.
Section 80 RRA of the IT Act, 1961, provides for deduction up to 75 per cent of income earned outside India and brought into India within 6 months from the end of the financial year. This section specifies that the deduction is available subject to the following conditions:

  • The assessee is a citizen of India.
  • He has received remuneration in foreign currency from any employer for services rendered outside India.
  • He is a technician as defined in the section.
  • He furnishes a certificate in Form No. 10H along with the return of income certifying that the deduction has been correctly claimed.
The income earned by you for services rendered outside India is to be treated as Income under the head Salaries.
The deduction would be restricted to the amount of convertible foreign exchange brought into India within six months. An example illustrating this is mentioned below.
Income earned, say, for a period of 4 months (FY 1999-2000) =
$1,860 x 4 = $7,440
Amount remitted on June 30, 2000: $5,000
Amount remitted on September 30, 2000: $2,000
Amount remitted on October 5, 2000: $440
Amount eligible for deduction: $7,000
Deduction: $7,000 x 75 per cent = $5,250

Is it true that if I pay taxes abroad, I get a refund on the tax paid in India on that amount? What is the tax percentage slab under the head salary income. My company says short-term percentage is 30 per cent and long-term is 10 per cent? Which is correct (you said 36/20)?

Rajadurai Asirvatham

Taxability of income is dependent on your residential status. Global income of resident Indian is taxable in India. We have presumed that you are a non-resident and have answered your queries accordingly.
If you are a non-resident then income earned outside India with contract of employment with a company outside India, then in that case your income would not be taxed in India. However, in case your contract of employment is with a Indian company for services rendered outside India, then such income would be liable to be taxed in India.
Double taxation avoidance treaties entered into between countries facilitate in avoiding taxing of income twice, once in the recipient country and then in the resident country. Hence the income if taxed in both the countries can be claimed as a refund in your return of income by furnishing the certificate of deduction of tax at source.
The tax slabs are for the total income that is as under (for non-residents):
For income up to Rs 50,000: 0%
For income more than Rs 50,000 but less than Rs 60,000: 10%
For income more than Rs 60,000 but less than Rs 1,50,000: 20%
For income more than Rs 1,50,000: 30%
We believe you are referring to tax rates on capital gains, which are as follows:
Short term capital gains are included in the total income and taxed applicable rates as specified above. Long term capital gain is taxed at 20 per cent. However, in case of sale of shares or bonds which have been acquired in foreign currency, the rate of tax applicable is 10 per cent for NRIs.

Both my husband and myself were working abroad for seven months. Is it possible for us to still maintain our bank account abroad? Is the interest on our NRE account taxable?

S R Janani

RBI has granted general permission to persons who have stayed outside India for a period of at least one year to maintain foreign currency accounts. In case of persons who have stayed outside India for a lesser period, they are required to close their foreign currency accounts maintained by them and arrange to transfer the balances therein to India within three months from the date of their arrival in India. If the accounts are desired to be continued for a slightly longer period, application in Form FAD 1 must be made to Reserve Bank within 3 months from the date of applicant arriving in India. Interest earned on NRE accounts are exempt from income tax under section 10 (4) of the Income Tax Act, 1961.

I want to set up a fund to promote rural education and scholarships in specific fields like and environmental protection. I also plan to buy land, lakes to protect and other areas for conservation in and around the cities. How do I do that? Will I get a tax break?

Rishidhar Dayaneni

For getting tax exemptions you can get registered as a Charitable Trust or Society under section 11 of the Income Tax Act, 1961. By doing so people who donate also can get a tax benefit. For doing so there are certain procedures like getting the permission from the Commissioner of Income Tax etc which you have to undergo.

I have been a NRI for the last 20 years and have now returned for good. Over the years I have parked my savings in a couple of fixed deposits in my NRE/NRNR accounts. I also purchased an apartment. Do I have to inform my bankers of the change in my status? What is my tax liability on the income from the above fixed depsoits? How do I spread the above amounts in various savings schemes so that I may get a regular monthly income ( as I have no other source of income), and at the same time attract the least tax liability?

W Fernandes

Since you have come back for good, you will have to inform your bankers about the change in your status at the earliest.
From your question, it is clear that for the financial year 1999-2000, you will have the status of NRI and for the year 2000-2001, your status will be "Not Ordinary Resident". The taxability of interest on deposits is given below:
As long as you have your RNOR status, interest on NRNR, NRE and FCNR is exempt from tax up to the maturity of the deposit. Once you become a normal resident, it is taxed with an option of a flat rate of 20 per cent upto maturity.
Where the RFC account is concerned, it is exempt from tax even on deposits renewed during the RNOR status. Once you become a resident, it is taxable as a normal resident.
Regarding investment of your funds, a complete advice can be given only after understanding your risk-return profile, the amounts available and other tax implications.

Send in your questions to perfin@rediff.co.in

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