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No tax on gifts from close relatives
July 27, 2007
A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.
A Rediff India Abroad feature:
My question is regarding RNOR status. I had come to India on 24.12.2000 after living abroad for 14 years. As I arrived before the law was amended in 2004, do I enjoy RNOR status for nine years as prevailed earlier? Obviously my planning at that time was based on nine years of RNOR status with tax exemptions on RFC interest, etc. -- K Rao
RNOR status is where you become a Resident of India, but your foreign income continues to remain tax-free. Before 2004, one could potentially enjoy this status for nine years provided certain conditions were met. However, this changed in 2004 when the government clarified that this status will henceforth be available only for a maximum of two years.
While changing the words of the law, the CBDT specified that all the while, it was always the intention to confer the benefit of RNOR status for just the two years -- it was being misinterpreted by taxpayers --so the amendment was not an amendment but more in the nature of a clarification.
Therefore, even if you have arrived in India prior to the 'amendment,' the two-year rule will be applicable to you.
I am a software engineer working for an Indian company deputed in the US for couple of years. I have a home loan in India which I would like to do a partial payment for. For that I want to send the amount to India to my father's account, so that he can give a check accordingly.
My father is still working as a consultant and is filing his returns till date. My question is, if I transfer a high value amount -- say Rs 200,000 -- to my father's account, will it attract tax for him? If yes, then can you please advise a better way to deal this situation since this might occur very often in this financial year?
-- Veer Singh
This amount transferred to your father will be treated as gift and since tax is not applicable on gifts, received from close relatives, there will be no India tax incidence on either you or your father, irrespective of the amount transferred.
However, once you transfer funds to your father, you lose title to the funds and it becomes your father's asset. So it would mean that your father will be paying for an asset that belongs to you.
In future, this could lead to future tax problems if and when you sell the property, as your father would be taken to be the beneficial owner of the property. To avoid any clash with the department, it is much better to transfer the money to your own account and make the payment to the housing finance company from there.
This will also enable you to claim the income deductions on repayment of loans, if any, for tax purposes.
I have been an NRI for two years and will return to India by end-July, 2007. I was allotted company shares in February 2007. I am still holding them. I will sell them before returning to India. The question is whether the money I get from selling these shares would be taxable in India (I will not have NRI status for the year 2007-2008.)
Since you will be a Resident for FY 07-08, your global income is taxable in India, whether you transfer the forex income to India or not. For taxation purposes, it is immaterial when the shares are allotted to you, what is material is when the income is earned. The tax on short-term capital gains arising out of this transaction has to be paid.
If a part or the entire amount of your income is taxed in India as well as in an other country or countries, there is no need to worry.
The Double Taxation Avoidance Agreement between the two countries will protect you. Such agreements between India and other countries are available on www.incometaxindia.gov.in
I am an NRI since 1990 and want to have the following information:
1. Is IPI7/IPI8 form to be filed with the RBI for the purchase/sale of the property within 90 days of the sale and purchase?
2. Is any permission required from any authority in India for transfer/gift/sale/purchase of the shares, residential, commercial property to the citizen of India or NRI? If so, what is the process?
3. A residential property bought for 4500,000 in 2005, sold in 2007 for 6000,000, what are the total taxes/capital gain tax that I have to pay and do I have to pay any TDS for the same.
-- S Wani
1. A person resident outside India who has a branch, office or other place of business (excluding a liaison office) for carrying on his business activity with requisite approvals in India may acquire an immovable property in India which is necessary for or incidental to carrying on such activity provided that all applicable laws, rules, regulations or directions for the time being in force are duly complied with.
The entity/concerned person would have to file a declaration in form IPI with the Reserve Bank, within 90 days from the date of such acquisition. The non-resident is eligible to transfer by way of mortgage the said immovable property to an Authorized Dealer as security for any borrowing.
When FEMA replaced FERA, way back in 1999, all the other series of IPI were discontinued for sake of simplifying the procedures.
2. An NRI with foreign passport (PIO) cannot sell an immovable property to any NRI or PIO without permission from the RBI. You may apply to -- the Chief General Manager, Reserve Bank of India [Get Quote], Exchange Control Department, Central Office (External Payments Division), Amar Building, Fort, Mumbai 400 001.
When the property is sold to a Resident, TDS is required to be applied by the Resident.
3. You have merely stated that the property was bought for Rs 45,00,000 in 2005 and sold in 2007 for Rs 60,00,000. However, for calculation of tax liability we would require the specific months of both the purchase and sale transactions.
This is because, in India, the tax provisions are dependant upon the financial year (Apr-Mar) and not the calendar year (Jan-Dec). For instance, March 2005 belongs to FY 04-05 whereas April 2005 belongs to FY 05-06.
You may revert with this data to enable us to work out the tax liability. If you revert, please attach this correspondence for our reference.
The authors may be contacted at firstname.lastname@example.org
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