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June 13, 2000

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"For how long can I hold property abroad?"

Get all your property-related queries sorted out here. Ganesh Jagadeesh & Co will be happy to clarify your doubts.

An American firm has currently engaged our CAD services which is uploaded through the Internet. Since they have agreed to make the payment in dollars, please advice us about the tax implications of this income as well as the best way they can remit this payment to us.

Premanand Shenoy

As the income arises in India (from business set up in India), regardless of where the payment is received, it is taxable in India. All expenses incurred by you for the business purpose can be reduced from the income to arrive at the "Net Profit/Loss" from the activity. Section 80HHE of the Income Tax Act, 1961 provides for deduction allowed on income arising from export of computer software and providing technical services outside India in connection with the development or production of computer software. If CAD services is covered by the definition of computer software as defined below, you would be eligible to claim the said deduction.

"Computer Software" has been defined in the Act as any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customised electronic data which is transmitted from India to a place outside India by any means.

Further, the deduction is subject to the satisfaction of the following conditions:

  • The consideration in respect of the export is to be received or brought into India in convertible foreign exchange within a period of 6 months from the end of the financial year in which the export was made.
  • Audit report of a Chartered Accountant in Form No. 10CCAF certifying that the deduction has been correctly claimed is furnished.
The said consideration shall be deemed to have been received in India where it is credited to a separate account maintained for the purpose with any bank outside India with the approval of Reserve Bank of India.
Hence in your case with the approval of RBI you may open a bank account in US and ask the US firm to credit that account or alternatively you may ask them to remit the consideration through regular banking channel to your account in India.

As it is not possible to explain the detailed accounting process through email, we can summarily say that such consideration needs to be separately shown as income in your P&L account. In case remittance is received from US or the consideration is credited in designated bank account in US, the same would be reflected in the bank balance figures in your balance sheet. The Accounting Standards issued by the Institute of Chartered Accountants of India needs to be followed with special emphasis on accounting for foreign exchange fluctuations.

We have been away from India for couple of years now and intend to return for good. Our intent is to set aside some funds exclusively for charitable purposes (education, healthcare). What is the limit and what are the tax implications? Would it be possible to set aside the principle amount in some fund and donate the interest every month?
Also, can we continue to own property outside of India after our return? If yes, for how long?
If we sell the property after some years, would we have to pay tax on it?
Can we buy agricultural land in India from income earned outside of India?

Giridhar Venugopal

There is no limit on the maximum amount that can be set aside by an individual. It is your own wish and discretion. There are no tax benefits available to you if you use the funds for the charitable purpose in the capacity of an individual. The interest income on the investments would be taxable in your hands. Instead, If you donate the funds to an approved institution recognised for the purpose under section 80 G of the Income Tax Act, 1961, you are eligible for deductions from your Gross Total Income.

Another way of organising your activity would be to from a trust and apply to the Income Tax Authorities for exemption from tax on the income of the trust. The contribution you wish to make may then be deposit into the trust. The interest on the investments that the trust makes would be exempt from tax. Regarding maximising revenues, there are many options available like mutual funds and tax free bonds offering various kinds of returns in comparison to the risk involved.

NRI's who are returning to India after having stayed outside India for a period of one year are allowed to retain their foreign assets after returning to India. Tax consequence in India will depend upon your residential status. Once you lose your status as a Non- Resident under the Income Tax Act, 1961, you will be liable to tax on all income earned by you globally.

I had a rupee account in an Indian bank and ownership of immovable property in India before I left for the US. Now, I am a US citizen. What are the tax consequences and filing requirements for the bank account if the interest income of the account does not exceed Rs 50,000 per year?
My child was gifted UTI shares. If he cashes them in what are the tax consequences?
Am I allowed to own residential property in India without permits? I shall inherit more residential property soon. Will there be taxes involved?

Jay

If the interest earned from your bank account in India is the only income earned in India and if it does not exceed Rs 50,000 (the maximum amount not chargeable to tax), then you are not required to file an income tax return for that year.

You have not mentioned whether your child is a minor or major. Assuming that he has attained age of majority, the sale of units would attract capital gains tax. Moreover, as the capital asset was gifted to your child, provisions of section 49(1) of the I.T. Act, 1961 would be attracted. The said section specifies that the cost to the previous owner (donor) would be the notional cost of acquisition and also in determining the time limit for the purpose of deciding whether the capital asset is short term or long term capital asset, the period of holding of the previous owner is also taken into consideration. If the child is a minor, then the income from such capital gains will be clubbed with the income of that parent whose income is higher.

You can own residential property in India without RBI permission. However, if you want to repatriate the sale proceeds of the property outside India, then you would need the permission of RBI.

Regarding taxability of the same, Section 22 of the Income Tax Act, 1961, provides for the charging of tax on the annual value of your house property. The method of determination of the annual value is prescribed under section 23 of the Act. There are also certain deductions available under section 24 of the Act. The determination of such taxable annual value depends on the use to which the property has been put to. Hence we would be able to advise on the same if we have full information on the nature of property, fair rental value, municipal taxes, year of acquisition, number of properties, location etc.

NRIs are not allowed to own agricultural land in India.

As per RFCA regulations, I am allowed to hold on to foreign currency deposits for the next 9 years and income is exempted from tax for 9 years. Once I acquire the RNOR status and open an RFCA account, I will lose the RNOR status (since I should have been residing in India for 730 days in the previous seven year period). How does the 9-year tax exemption and permission to hold RFCA account interpret with the above 730 days.

Ganga

You will become "Resident but not ordinarily resident", if you satisfy only one or none of the following conditions:

  • You are not resident in India in 9 out of 10 previous years immediately preceding that year, i.e. if you are referring to financial year 1999-2000, then you should not be a resident Indian for at least 9 out of 10 years falling between 1989-90 and 1998-99;
  • You have not been in India for a period or periods amounting in all to 730 days or more during the 7 previous years preceding that year.
Interest on deposits in the RFC account will be exempted from tax if such deposit is renewed during the period of RNOR status.

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