Tag: NRI

How to be an accredited investor

Personal Finance

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Have you ever wished that as an individual investor in India, you had access to some of the exciting high-risk high-return products that your global cousins dabble in? Have you been hoping that you could participate in hedge funds, angel investments or unlisted securities without betting too much on one product? Do you think you are capable of researching investment options on your own without a verbose offer document?

If you replied ‘yes’ to any of these questions and also have many zeros to your net worth, then you may like to sign up under SEBI’s new ‘accredited investor’ framework, notified last week, to expand your horizons.

Who can apply

Any investor meeting certain minimum net worth and income criteria can get himself or herself certified by notified agencies to earn the moniker of ‘accredited investor’.

SEBI’s new rules say that to apply to be an accredited investor, an individual needs to meet one of three conditions. One, you must have an annual income of over ₹2 crore. Two, you can have net worth of at least ₹7.5 crore – of which at least ₹3.75 crore is in the form of financial assets. Three, you can have an annual income of ₹1 crore and a net worth of ₹5 crore, out of which at least half is in financial assets.

To calculate this net worth, your primary residence or the home you live in, will be excluded from the calculation. Your other real estate assets will be considered. If you jointly hold investments with your parents or children, at least one of you should independently meet these conditions. You and your spouse can, however, combine your incomes/net worth to meet this bar.

You can apply for accreditation for one year or two years. If you need the certificate to be valid for one year, you need to have met the above conditions for the last financial year. To get two-year validity, you should have met these conditions continuously for the last three years.

What if you haven’t amassed the above net worth or income yet, but are a qualified chartered accountant, RIA, CFP or CFA? In that case, these regulations don’t allow you to be ‘accredited’ though you may have sufficient knowledge to evaluate sophisticated products. In developed markets such as US, the accredited investor definition has recently been expanded to include folks with professional or advisory qualifications, even if they don’t meet net worth or income criteria. But SEBI has not taken that road yet.

How to apply

You will have to apply with the required documents to the stock exchanges or depositories authorised by SEBI to function as ‘accreditation agencies’.

The documents you need to submit are copies of your PAN card and Aadhar or passport and your income tax returns for the last one or three years, depending on whether you seek accreditation for 1 or 2 years. A practicing CA needs to certify your net worth as of March 31 of the previous 1 or 3 years as required. You will also need to submit proof of valuation of your assets, by way of a demat account statement or ready reckoner rate applicable to real estate.

You need to sign a declaration that you are not a wilful defaulter, a fugitive economic offender or debarred from securities markets and if an NRI, not barred from accessing Indian markets. The accreditation agency will verify these and also that you are ‘fit and proper’ to participate in markets, before issuing a certificate. When you invest, you will have to additionally submit a consent letter saying that you have the necessary knowledge to understand a product’s features and risks.

What can you do

The intent of this framework is to allow folks with a sufficient financial cushion and risk-taking ability to participate in riskier investments, without SEBI or other regulators looking over their shoulder.

To start with, SEBI has relaxed minimum ticket size norms and diluted disclosure requirements for some products. As per the new rules, if you’re an accredited investor, you can invest less than the minimum ticket size of Rs 1 crore in Alternative Investment Funds (AIFs) and less than the ₹50 lakh norm in Portfolio Management Schemes (PMS).

The AIF universe in India today spans over 700 funds over three categories. Category I AIFs include venture capital and angel funds, social impact and SME funds. Category II includes real estate, private equity, distressed debt and venture debt funds. Category III spans hedge funds following long-short, arbitrage and derivative strategies. On PMS, a lower ticket size can allow you to spread your bets over multiple styles and managers instead of concentrating on just one or two.

If you are willing to commit larger sums, the AIFs or PMS’ you invest in may be allowed to take on more concentration risks. For instance, PMS managers have been allowed to roll out ‘large-value’ funds for accredited investors willing to invest ₹10 crore each, to invest wholly in unlisted securities. Accredited investors willing to bet ₹70 crore at one go, will gain access to large-value AIFs that take concentrated exposures of upto 50 per cent in their investee companies. Such funds need not file a placement document with SEBI. Expect this bouquet of products to expand as SEBI builds on this new idea.

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Tax Query: TDS on capital gains for NRI investing in MFs with power of attorney

Personal Finance

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My son Prabaharan is an NRI. I am investing in mutual funds for him basis a power of attorney. The payment is made from the joint savings account of Prabaharan and myself (Indian resident account). In the circumstances stated above, is it necessary to deduct TDS from the capital gains?

K. Ramachandran

As per the provisions of section 196A of the Income-tax Act, 1961 (‘Act’), every person responsible for paying to Non-Resident any income in respect of prescribed mutual funds, shall deduct taxes at source (‘TDS’) at 20 per cent on such income, at the time of credit or payment whichever is earlier. I understand that your son is the legal owner of the mutual funds and qualifies to be a non-resident in India and is receiving income in the nature of Capital Gains on transfer of mutual funds. As per the above-mentioned provisions, TDS would be deducted by the payer at 20 per cent of such Capital Gains at the time of credit or payment, whichever is earlier. Please note that for your query, I have not analysed and commented on any exchange control regulations / legal aspect.

My father (aged 61 years) retired in March 2020 and invested ₹15 lakh in senior citizen savings scheme in post office in May 2020. Is the amount invested eligible for 80C for all the five years, or it is only for the first year? Is the amount enough to fulfil the entire ₹1.5 lakh limit under 80C for all the 5 years?

Gokulanathan K

As per the provisions of Section 80C of the Income-tax Act, 1961 (‘Act’), the deduction is available in respect of any sum paid or deposited (as specified in the said section) during the concerned Financial Year (‘FY’), subject to a maximum eligible deduction of ₹150,000. Accordingly, for the amount contributed in May 2020, the deduction available to be claimed in your father’s hands would be for FY 2020-21, which shall be restricted to ₹150,000 (i.e. only for the year in which the amount is deposited in an account under Senior Citizen Saving Scheme). The amount invested during FY 2020-21 would not be eligible for deductions in future years.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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All you wanted to know about NRI bank fixed deposits

Personal Finance

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With central banks world over resorting to easy monetary policy, interest rates have plunged to all-time lows. If you are an NRI the rates offered on fixed deposits by banks in India may, however still be relatively higher when compared to those on fixed income investments in countries where you currently reside – be it the USA, UK, Australia, Saudi Arabia, or Denmark.

NRIs can invest in bank FDs in India either in Indian rupees or foreign currency. The rupee-denominated bank deposits can be NRE or NRO depending on the source of the money being invested. If income has been earned in India, the money must be deposited in an NRO (Non Resident Ordinary) deposit only. In other cases, an NRE (Non Resident External) deposit will be opened.

Those wishing to keep the money in the currency of the country where they currently live, can choose between FCNR (Foreign Currency Non Repatriable) Deposits and RFC (Resident Foreign Currency) deposits. These FDs fetch interest income in foreign currency and help save on costs (also losses at times) on account of currency conversion. Most banks accept FCNR deposits in currencies such as the Great Britain Pound, the US Dollar, the Euro, the Canadian Dollar, the Japanese Yen, and the Singapore Dollar.

However, in case of RFC deposits, banks mostly accept deposits in the Great Britain Pound and the US Dollar. The RFC deposits are mostly a preferred choice for those who wish to return to India or have already returned to India. RFC deposits, which can be held for a maximum tenure of three years, allow such NRIs to park incomes earned abroadon their return to India. These deposits help save taxes when you lose your ‘non-resident’ status as per the tax laws.

Not only do these different deposits available for NRIs offer varying interest rates but their taxability and the rules of repatriation also differ. To help you choose better, here is a lowdown on their varying features.

Returns and taxes

The rates offered on NRO and NRE term deposits are mostly at par with those offered to resident deposit holders. The tenure too is similar. In the case of NRE term deposits alone, however, most banks do not offer deposits for less than a year’s term.

Currently, Indian banks offer interest rates in the rage of 4.9 to 6.5 per cent per annum, on deposits with tenures ranging from one to five years.

That said, since the interest earned on NRE deposits is exempt from taxation in India, the post-tax return is higher for these deposits. The interest earned on NRO deposits, which comprise monies earned in India is taxed as ‘income from other sources’. Besides, the tax rate is as per the DTAA (Double Taxation Avoidance Agreement) between India and the respective country. Under Section 80 C of the Income tax Act, while investments in certain NRO deposits (tenure of five years or more) are eligible for tax deduction, the interest earned on the same continues to be taxable.

The interest rates offered on FCNR and RFC deposits vary according to the currency and the tenure selected. For instance, SBI offers interest rates in the range of 0.66 to 1.38 per cent per annum on its USD denominated deposits for 1 to 5 year tenures. While for the Euro denominated deposits of a similar deposit, the bank offers 0.01 to 0.15 per cent per annum.

The interest earned on FCNR deposits is tax-free for all NRIs, while that on RFC deposits is exempt only for taxpayers defined as resident but not ordinarily resident per the IT Act. For other NRIs, interest earned on RFC Deposits shall be taxable.

Repatriable or not

For NRIs, repatriation of funds might also play a crucial role in deciding the kind of deposit. Funds deposited in NRE, FCNR or RFC deposits are fully repatriable —both principal and interest. In the case of NRO deposits, while the interest earned on such deposits can be freely repatriated, the principal amount deposited is repatriable only subject to conditions.

Since the amount deposited in NRO accounts construes monies earned in India, repatriation is allowed only in the cases of certain current incomes such as rent, dividend, and pension. The RBI permits free repatriation (without prior approval) of up to USD 1 million, per financial year from such balances held in NRO accounts (along with other eligible assets), subject to tax payment.

Joint holders

While two or more NRIs can freely open a joint account in any of the above deposits, a joint deposit account with any person resident in India (irrespective of their relationship with the NRI) is permitted only in the case of an NRO account, that too on a ‘former or survivor’ basis. This means that in such joint deposits, the primary holder (NRI) will operate the account in all circumstances except in case of his/her death. Only in case of death of the first person, the joint holder will be eligible to operate the account.

For NRE, FCNR and RFC deposits, joint deposits with residents are permitted on a ‘former or survivor’ basis, only with their resident relatives These relatives include spouse, parents, siblings, and children and their respective spouses. The resident relative can, however, operate the account as a Power of Attorney holder during the lifetime of the NRI/ PIO account holder.

Akin to the term deposits discussed above, NRIs can also open a savings account, current account or a recurring deposit. Again depending upon the source of income, these can be either NRE/NRO accounts.

Do note that FCNR and RFC are choices available in term deposits only. Unlike term deposits, such savings/ current accounts can come in handy for meeting regular expenses of your dependants in India.

NRO, NRE deposit rates are at par with offers for residents

Interest earned on NRE deposits is exempt from taxation in India

NRE, FCNR or RFC deposits are fully repatriable

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We are well prepared compared to the first wave: South Indian Bank CEO

Banking & Finance

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The Thrissur-based South Indian Bank is looking at a credit growth of about 10 per cent in FY22, assuming the economy revives in the second half of the current fiscal. We have laid down plans for the growth of about 18-20 per cent in the coming years, says Murali Ramakrishnan, Managing Director and CEO. We are continuously monitoring the impact of Covid and recovery of the economy and will keep on calibrating our growth plans accordingly, he adds. Excerpts:

What are the plans for the current fiscal year?

It is the decision of the bank to rejig the existing portfolio, with the focus to diversify the risk both in assets and liabilities. We are replacing the bulk deposit with retail deposit and the lumpy corporate exposures with diversified retail exposures.

The bank has been following a branch structure where asset and liability business were managed by branches. To facilitate this, we had a closer look at the structure of the bank. Post our assessment, a dedicated vertical asset structure was formed for all retail assets in businesses, in which the branches would act as one more channel for sourcing new leads from the existing customers and walk-in potential customers.

Similarly, MSME and the corporate banking vertical has been formed with a dedicated sales structure across the country.

I am happy to share that the new vertical structure is in place with dedicated teams. Wherever we felt that the internal talents are not available, especially in the retail asset vertical, we have recruited a few experts laterally to drive those businesses.

Apart from this, we have set up a separate data science division tohelp us do analytics in the area of assets, liability, collection. We have also set up separate operations divisions to take care of back-end fulfillment of asset and liabilities transactions.

What would be the impact of Covid-19 on the business?

Compared to the first wave we are well prepared, and the government has also not resorted to the complete lockdown. Also, we now have vaccines. We are closely assessing the impact of the second wave on our borrowers and wherever we feel there is a genuine need, we are extending full support with restructuring as per regulation.

We had extended moratorium benefits to all borrowers, in line with other banks. We were witnessing improvement in business activities till March, which was impacted by the second wave.

What has been its impact on NRI remittances?

Owing to the pandemic, most people, including NRIs, keep a buffer in their bank accounts for emergencies. Further, there are several restrictions placed in many countries, which have resulted in increased remittances for meeting the financial needs back at home.

South Indian Bank posts net profit of nearly ₹7 crore in Q4

The rupee had appreciated against the dollar in FY21, which has led to an increase in remittances. Overall, we experience moderate growth in remittances during FY21.

Can you specify your plans in raising equity capital?

As part of the Vision 2024 strategy, the bank has worked out the equity capital requirement, based on the business projections for the next three years. The recent equity capital raising of ₹240 crore through marquee domestic institutional investors was in line with our stated strategy.

The envisaged equity capital will be used to strengthen the balance sheet and build a buffer against the pandemic. We intend to raise the balance tranche of equity capital of ₹510 crore by December 2021.

The bank’s share price is low, which is not giving much gain to investors. Will they reflect deeper troubles?

We are completely cognizant of the pain our existing loyal investors have suffered over the past few years in terms of subdued share price performance. However, with key initiatives by new management, the market has appreciated the efforts, which are reflected in the share price performance of the bank in the last six months.

South Indian Bank mulls multi-pronged approach to return to profitability

We are happy to say that even after fresh equity capital, our overall market capitalisation has improved without an impact of revised valuation multiple. Further, given the revised book value of ₹27.7 per share against the market price of about ₹10, we believe there is inherent value in the stock and it deserves timely appreciation.

How are you preparing to tackle the Covid-19 virus? Are your employees fully vaccinated?

With the outbreak of the pandemic, the bank had, from the beginning of the calendar year 2020, initiated several proactive measures to safeguard the safety and security of employees. Through periodic instructions and continuous monitoring, it was ensured that all offices of the bank funtion strictly following Covid protocols.

The bank has initiated a few new employee benefits such as medical insurance for treatment of Covid and life insurance in the unfortunate event of the death of an employee. Further, the bank will be reimbursing the vaccination cost for all employees and their dependent family members.

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HDFC Bank rejigs management for next growth phase, BFSI News, ET BFSI

Banking & Finance

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HDFC Bank has unveiled organizational changes under its Project Future – Ready to power its next phase of growth.

The bank has reorganized itself into three key pillars – Business Verticals, Delivery Channels and Technology/Digital to build its execution muscle. The business vertical and delivery channels will enable it to capitalise on the opportunities across different segments.

The bank will double down its efforts in business verticals like Corporate banking, retail banking, private banking, government and institutional banking, retail assets and payments.

It is increasing its focus on Commercial Banking (MSME vertical), the backbone of Indian economy enabling the bank to bring its product and digital might to the entire Commercial Banking (MSME community) in a much more holistic and focused manner across Bharat & India.

The strategy is split into four broad delivery channels: Branch, Tele-services, sales channels with business verticals and digital marketing. All the businesses and delivery channels will be backed by Technology & Digital as the core backbone. The outlined its Technology transformation agenda and it will synergise and integrate its technology / Digital functions and invest aggressively to both Run and Build the Bank.

Sashi Jagdishan, MD, HDFC Bank said, “We are creating engines of growth with top tier talent backed by technology and digital transformation to capitalise on opportunities that will accrue in the coming time. They are in our mind Future – Ready teams. I am sure this structure will create the necessary strategic and execution agility that we need to serve our customers across India & Bharat, Retail, Commercial (MSME) and Corporate segments.”

Kaizad Bharucha, Executive Director, will continue to drive the Wholesale Bank including Corporate Banking Group, Capital and Commodities Markets group and Financial Institutions.

Rahul Shyam Shukla, Group Head, will now be responsible to drive the Commercial Banking (MSME) and rural vertical, a big future growth engine for both India and the Bank.

Smita Bhagat, Group Head – Government and Institutional Business (GIB) and Start-ups will continue to drive the Govt / Institutional Banking. She will also drive the expansion of our rural presence leveraging our partnership with CSC and also the start-up sector.

Arvind Kapil, Group Head – Retail Assets and SLI, will continue to drive the Retail Assets Portfolio. The growth potential, we believe, is immense in retail assets in the context of credit under penetration in the country.

Rakesh Singh, Group Head – Investment Banking and Private Banking will also be responsible for Marketing, Retail Liability Products and Managed Programmes.

Ravi Santhanam, CMO, will now be also responsible for driving Digital Marketing as a stand-alone delivery channel. He will also be additionally responsible for the Retail Liability Products and Managed Programmes.

Sampath Kumar, Group Head – NRI will now be in charge of all tele-service relationships, including VRM delivery channel of the Bank. The mandate is to combine the power of human touch and digital to deliver a differentiated customer experience.

Arvind Vohra, Group Head – Retail Branch Banking, Retail Trade & Forex will continue to drive the efforts to expand the Bank’s reach across India through branch banking.

Parag Rao, Group Head – Payments Business, will now drive the technology transformation and digital agenda. He will continue to be responsible for the Payments vertical. Mr Ramesh Lakshminarayanan, Chief Information Officer and Mr Anjani Rathor, Chief Digital Officer will report to Parag.

Ashish Parthasarathy- Group Head, Treasury and GIB would also provide the leadership for the tele-service / sales / relationship channel.

Bhavesh Zaveri, Group Head – Operations, will continue to handle the entire operations of the Bank. He will also be additionally responsible for the entire ATM channel operations across the country.

The bank said the role of credit, risk, control and enabling functions continue to be critical as it scales up further in size and reach to realise its vision of Project Future Ready.



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Tax Query: How freelancing income received from abroad is accounted for

Personal Finance

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I am a software engineer with a CTC of ₹17 lakh per annum. I have been filing ITR Form-1 for the last five years. I got an onsite travel opportunity to Ireland and travelled there on January 2020 on work permit visa. During my stay there, I got my Indian component of ₹17 lakh and in addition I got salary in Ireland for which taxes were deducted at source. Due to Covid-19, I lost my employment and returned to India on October 2, 2020. Thereafter, I worked as a freelancer in November and December with an Irish client and got my payments in euros to my Irish account. For financial year (FY2021), I was out of India for 184 days and hence qualified to be an NRI. Should I declare the freelancing payment received in my Irish account? Can I still file ITR-1 for the year 2020-21? Let me know if any exemptions could be claimed.

– Krishna Prasad R

We understand that you are an Indian citizen and have been primarily staying in India over the past 10 financial years (FY) preceding FY 2020-21. Taxability in India is primarily dependent on the residential status of an individual, which is based on the number of days of physical stay of the individual in India in the relevant FY and preceding FYs, and is defined under Section 6 of the Income-tax Act, 19619 (Act’).

As per the provisions in the above mentioned section, an individual is said to be a resident in India if he satisfies either of the following two basic conditions:

a. He is in India for 182 days or more in the relevant FY; or

b. He is in India for 60 days or more in the relevant FY and 365 days or more in the four years preceding the relevant FY.

An individual who does not satisfy any of the above conditions is considered as a Non-Resident (NR).

Also, from FY 2020-21, in case an Indian citizen or a person of Indian origin, who has been outside India, comes on a visit to India in any tax year, the condition of 60 days [discussed in Point (b) above] gets replaced by 120 days if his total incomes (other than incomes from foreign sources) exceeds ₹15 lakh for that tax year. However, if such income is up to ₹15 lakh, then the 182 days condition prevails.

In case where the physical stay exceeds 119 days but is up to 181 days, such individual shall qualify as Resident but Not Ordinarily Resident (NOR) and not Resident and Ordinarily Resident (ROR).

A resident individual is said to be a Resident and Ordinarily Resident (ROR), if he satisfies both the following conditions, viz.

i. He should be ‘Resident’ in India for 2 out of 10 FYs immediately preceding the relevant FY; and

ii. He should be in India for an aggregate period of 730 days or more in 7 FYs immediately preceding the relevant FY

In case, a resident individual does not satisfy either of the aforesaid additional conditions (i) or (ii), he is said to be a Resident but Not Ordinarily Resident (NOR) in the relevant FY.

From the above provisions, your analysis that you would be qualifying as an NR since you stayed outside India for 184 days during FY 2020-21, may not hold correct and would require you to redetermine your residential status in the light of the above provisions basis of your physical stay in current FY as well as past 10 FYs.

Since you came back to India for good during FY 2020-21 and considering that you satisfy the aforesaid conditions [condition b and (i) and (ii) above], you would qualify as ROR in India and be subject to tax on your worldwide incomes.

Since you qualify as ROR in India for the said year, in addition to taxing your global incomes, you will also have the requirement to report any assets held by you outside India (including bank accounts) and any incomes you might have outside India.

In case of double taxation of your Ireland income, recourse to the India-Ireland Double Taxation Avoidance Agreement (DTAA) shall be required to be considered to mitigate the impact of double taxation in India.

For filing of your tax return, the applicable tax return form would have to be selected appropriately, once such forms have been notified by tax authorities for FY 2020-21. As per the forms notified for FY 2019-20, considering you earned salary income while being on overseas assignment during some part of the year and also incomes from a profession (freelancing income), Form ITR – 3 is applicable.

You also mentioned that you started your overseas assignment in Jan 2020, i.e.,during FY 2019-20. You also mention that you have been filing ITR -1 for the five 5 years.

Considering the assignment-related income and the foreign asset and income disclosure requirements as mentioned above, ITR -1 is not the correct form to be filed for FY 2019-20.

You should have filed return of income in Form ITR – 2 for FY 2019-20, provided you did not have any income from business/profession for the subject year. The statutory due date for filing of revised return for FY 2019-20 is 31 March 31, 2021. You may revisit and file a revised return in form ITR – 2 with appropriate disclosures and amendments.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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Will home purchase by mother using NRI son’s money face tax?

Personal Finance

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My son is an NRI and he wants to gift his earnings to his mother, who is a housewife and has no income. She wants to invest the amount in a residential site in her name. Please let me know tax implications on both the mother and son. Also, should she file I-T return on account of this?

LAKSHMISHA

Gifts will not attract income tax in the hands of the donor. Further, it will not attract taxation in the hands of the recipient if gifts are received from a relative as defined under the income tax act.

Parents are covered under the definition of relatives. As a result, any amount gifted by your son to your wife is not taxable in her hands.

However, any income that your spouse earns from the gift will be taxable in her hands. Further, under the provisions of the Income Tax Act, 1961 an individual is required to file a tax return where:

· the taxable income during the Financial Year (FY) exceeds the maximum amount not chargeable to tax, i.e., ₹2,50,000;

· has deposited an amount or aggregate of the amounts exceeding ₹ 1 crore in one or more current accounts maintained with a banking company or a co-operative bank; or

· has incurred expenditure of an amount or aggregate of the amounts exceeding ₹2 lakh for himself or any other person for travel to a foreign country; or

· has incurred expenditure of an amount or aggregate of the amounts exceeding ₹1 lakh towards consumption of electricity. or

· holds a foreign asset outside India either as a beneficial owner or otherwise

In case, the taxable income of your spouse from the said residential site during the relevant financial year exceeds ₹2,50,000 in any financial year or she fulfils any of the criteria mentioned above, she will be required to file a tax return.

I have an HUF, with demat account. I would like to transfer some shares of a listed entity from HUF to one of its members. This will be done via off-market transaction. The member (or the recipient) will pay fair and adequate consideration (say based on market price on the date of transaction) for this transaction. In such case, what will be the implications from income tax perspective, specifically: a) Will this be treated as sale of shares and HUF becomes eligible for payment of capital gains from this transaction? b) What will be the date of acquisition of these shares for the member (or the recipient)? c) Since these is adequate consideration, won’t this be treated as a gift? d) Also, will there be any difference in taxability, if the recipient is not a member of the HUF?

Ashish Ladha

The shares received by a member from the HUF shall be chargeable to tax in the hands of individual member as it neither is in the nature of gift nor is received from a relative defined under the Act.

a) As per Section 45 of the Act, any profits or gains arising from transfer of capital asset shall be chargeable to tax under the head Capital Gains in the year in which the transfer took place. Transfer of shares by the HUF to its member shall be treated as transfer and HUF shall be liable to pay tax on gains arising from such transfer.

As per Section 112 of the Act, long term capital gain arising from sale of listed securities shall be subject to tax at the rate of 20 per cent where cost has been indexed or at the rate of 10 per cent where the benefit of indexation of cost is not availed. Surcharge, if applicable and health & education cess at 4 per cent shall be payable in addition.

b) The date of acquisition of the shares for the member of the HUF shall be the date when the off-market transaction is initiated and shares are transferred to the member.

c) Given that the shares are transferred by HUF to its individual member for adequate consideration, i.e., at the fair market value of the shares as on the date of transfer, the said transfer cannot be treated as gift.

d) If the shares are transferred to any other person, who is not a member of HUF, there shall be no difference in the income tax treatment discussed above. All the points discussed above shall hold good.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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What NRIs selling a house must know

Personal Finance

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If you live and work abroad and the pandemic has wrecked your finances, one fall-back option you could consider is selling a house you may have invested in, back home. However, this is easier said than done.

Selling a house is a big-ticket transaction with tax implications. And if you are a non-resident Indian, living and filing taxes in a foreign country, then the hassles are manifold.

Tax deduction

When a property that is being sold is owned by an NRI, the buyer is required to deduct tax (TDS – tax deducted at source) at 20 per cent, plus surcharge and cess. For example, if the sale price is ₹50 lakh, ₹10 lakh will be paid as tax by the buyer on your behalf. If the property was purchased for say, ₹35 lakh, the capital gains is only ₹15 lakhs, on which tax is applicable (long-term or short-term, based on how long the property was held). The actual tax owed may be much less; file your tax return at year- end and claim the extra amount paid.

To avoid this problem, you can get a certificate from the Income-Tax Department for deducting the amount that would be closer to the actual tax rather than based on the TDS deduction. You need to apply for a certificate to withhold less, using Form 13 application. The required documents are purchase deed of the property (which gives the price), income-tax filing details for the last three years, sale agreement giving the price and an affidavit.

If you want to re-invest capital gain to save on tax, apply for Tax Exemption Certificate. For this, you need to show proof of reinvestment – this may be allotment letter or payment receipt if buying a new house or affidavit stating that you will invest in capital gains bonds under Section 54EC.

“It takes 30-45 days to get the certificate. You must give this to the buyer, so he can deduct TDS accordingly”, says Venkat Krishnamurthy, Chartered Accountant, V. Ramaratnam & Company.

Checking payment

One other complication is ensuring that the buyer indeed has made the payment that was deducted to the tax authority. The payment made against your PAN will appear on your 26AS form and you can claim this as tax paid when you file your income tax return. But there are cases where the buyer fails to pay for various reasons. For instance, the buyer needs to have a Tax Deduction Account Number (TAN) issued by the Income-Tax Department. Most individuals may not have one and one needs to budget 15 days to get it. So, it is advisable to plan for this ahead to not create a bottleneck in closing the deal. The buyer then pays the TDS and files TDS returns, within the due dates for the period.

If the payment is not made, the tax liability is still the onus of the seller, says Venkat Krishnamurthy. So, instead of finding it out late, you can require that the buyer makes the TDS payments and shares the receipts when the sale is closing, he suggested.

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Tax planning

You also need to think about tax-saving options more holistically, considering the requirements in India and the country where you file taxes. In general, you are required to pay tax on the gains in India and in your country of residence. And if the other country may consider and give credit for taxes paid in India.

For example, reinvesting the gains to buy a new property – six months before to or within two years of the transaction – can save on tax in India. But this may not be the rule in the other country; and you would be liable to pay tax, negating any benefit.

Currency repatriation

If you want to take the money from the sale to a foreign country.. Forms 15CA and 15CB must be certified by a CA and filed online, to give information such as capital gains and tax dues paid.

There are certain restrictions to consider. One, if the property was bought while you were in India, you must have held the property for 10 years before the amount can be repatriated. If not, you need to wait. In case of inherited property, there is no lock-in period.

You can show proof of inheritance and tax clearance certificates and transfer funds.

You can repatriate up to $1 million per financial year from your NRO account, plus foreign funds, if any, used for the purchase.

The author is an independent financial consultant

 

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