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April 10, 2000

Real Estate

"Does an NRI need a PAN to purchase an apartment?"

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 came to Canada in April 1999 and work for an Indian-based company. In India, I earn a salary for which I am being taxed. I am simultaneously getting paid in Canada by Indian employer and even paying the taxes here. Is the money that I earn in Canada taxable in India?

— Manish Bhojasia

Your NRI status confers exemption on all income earned and received by you outside India. Further, with specific regard to the money being received by you in Canada, Section 9 (1) (ii) of the Income Tax Act, 1961 specifies that income chargeable to tax under the head "Salaries" is deemed to accrue or arise in India if it is earned in India.
In your case, if, the salary in Canada is received by virtue of a contract of employment with an entity based in India, it is deemed to have been earned in India and hence is taxable.

You are eligible for a deduction under section 80RRA, of upto 75 per cent of the amount remitted by you into India within six months from the end of the financial year.
This deduction is available only if you are a technician as defined under explanation © to sub-section (2) of section 80 RRA and further, the terms and conditions of your service outside India are approved in this behalf by the central government or the appropriate authority. The balance 25 per cent is taxable at the marginal rate of tax.

I was transferred to Bahrain in March 2000, to my company's new unit. I have invested in LIC's Jeevan Mitra. Will this help in tax saving? How can I send money to my parents in India? Do I need an income tax clearance certificate before I leave for Bahrain?

— Nandula Sai Rajesh

Few issues arising out of your query are as follows:

  1. What is your residential status for the financial year 1999-2000?
  2. Are you are sent on deputation to Bahrain branch of your company in India or would you be joining a new Company in Bahrain?
  3. What is your net taxable income so that your tax liability could be computed?
  4. Have you filed tax returns for past years?

From the information submitted by you it is clear that for the purpose of Income Tax you would be a resident in India for the Financial year 1999-2000 (Assessment Year 2000-01) as you would be leaving India only in March 2000 whereby you are resident in India for more than 182 days.
If you are sent on a deputation to Bahrain by your Indian company (employment contract is between you and your Indian company) then the income earned by you in Bahrain would be taxable in India. On the other hand if you are joining a company in Bahrain (your employment contract is with company incorporated in Bahrain), then for the FY 2000-01 (AY 2001-02) you would be a non-resident (provided you are not in India for more than 182 days) and hence your income for that year would not be taxable in India.

Insurance premium paid under schemes of LIC is useful in claiming rebate under section 88 of the Income Tax Act 1961, whereby you would be eligible for a rebate of 20 per cent of the amount invested subject to the limits specified (maximum rebate upto Rs 12,000 with additional rebate of Rs 2,000 for investment in shares, debentures or units of infrastructure sector).

It is advisable for you to get Income Tax Clearance certificate in case you are leaving India for a job abroad. However, if you are going on a deputation by your Indian employers for a fixed period you would not be required to file for this certificate.

I am an NRI working in US since 1994. I am planning to return to India in 2001. I own an apartment in Pune that was built in 1996 and has been rented since for a cost of Rs 6,000 per month. Am I liable to pay tax? How do I apply for and get a PAN number so I can clear my tax liabilities?

—Kamalesh Nayudu

I have been an NRI for the past 7 years and I wish to purchase an apartment in India. Do I need to have a PAN number for this purpose ?

—Abhijit Sinha

Section 115G of the I.T Act, 1961 lays down that a NRI need not furnish a return of income under section 139 (1) of the Act, if:

  1. His total income in respect of which he is assessable to tax during the previous year consisted only of investment income or income by way of long term gains or both; and
  2. The tax deductible as per the provisions of the Act, has been deducted from such income.
As per section 9 of the Income Tax Act 1961, any income from any property situated in India will be treated as income accruing or arising in India. And as per section 5 of the Act the same will be taxable in the hands of both Residents and NRI. Thus the income (rent) received from owning a house property will be taxed in the hands of both Resident & NRI u/s 22 under the head "Income from House Property". Further, tax on capital gains is payable if you desire to sell it off.

Since in your case the income is arising from the House Property in India, you are liable to tax under the head "Income from House Property". Hence you will have to furnish your return of income. Assuming that you have not furnished your return of Income on or before the due date you would be liable for penalty and interest, if there is any Income tax payable on your income from House Property.

PAN is required to be applied for by an assessee if such person satisfies any of the following conditions:

  • If his total income or the total income of any other person in respect of which he is assessable exceeds the maximum amount which is not chargeable to income tax (Rs 50,000 for the current year);
  • Carrying on any business or profession whose total sales, turnover or gross receipts are or is likely to exceed Rs 5,00,000;
  • Who is required to furnish a return of income for income derived from property held under trust or other legal obligation wholly for charitable or religious purposes.
You can apply for Permanent Account Number by making an application in form number 49A.

Section 139A of the Income Tax pertaining to the permanent account number (PAN) does not apply to NRIs. Moreover, as per the provisions of Rule 114C of Income Tax Rule, 1962, an NRI is exempted from applying for PAN.

I shall be returning to India in September 2001 after 12 years. I want to know whether my earnings in the FY April - September 2000 will be taxable or not as I will not be finishing six months abroad in this financial year?

— Dr A K Lahiry

I have been granted NRI status in financial year 1997-98 & 1998-99. For FY 1999-2000, I may not be able to complete the required 182 days. I have worked overseas for 120 days and all remittances have been accrued in my NRE account. Are there any exemptions applicable to me or will my remittance be taxed?

— Hormuz Aderianwalla

Section 6 (1) of the Income Tax Act, 1961 contains the conditions whose fulfillment or otherwise would determine the residential status of an assessee. A person attains the status of a resident Indian for the purpose of tax if he satisfies one of these two conditions:

  • He is in India in the previous year for a period of 182 days or more
  • He is in India for a period of 60* days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year (note: 182 days to be substituted for 60 days in case of a person who proceeds abroad for the purpose of employment outside India)

Further, under section 6(6) a resident individual is treated as "resident and ordinarily resident" in India if he satisfies the following two additional conditions:
  • He has been resident in India in atleast 9 out if the 10 previous years [according to the basic conditions noted above] immediately preceding the relevant previous year;
  • He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.
In other words, it can be said that an individual becomes resident and ordinarily resident in India if he satisfies atleast one of the conditions in section 6(1) and the two additional conditions in section 6(6). As the complete details of your stay in India in the earlier years is not available it is not possible for us to determine your Residential Status.
On the basis of the above definition you can ascertain your residential status in accordance with the date of your return to India.

For a Resident and Ordinary Resident of India, Income received and accrued outside India from a business controlled or profession set outside India will also be taxable.
However for a Resident but Not Ordinary Resident of India, Income received and accrued outside India from a business controlled or profession set outside India will not be taxable.

I am a Canadian citizen and my wife an Indian citizen. We have been residing in Canada for more than 25 years. We had invested US dollars in SBI bonds (non-repatriable). After maturity, money was converted in rupees and deposited in our NRO account. We have fixed deposits for one-year, two-years and three-years maturity and also mutual finds.
What is tax on NRO fixed deposits? What is the tax on capital gain on mutual fund which was bought from forex from an NRO account?

— Pramod Kumar

Interest on NRO account is not exempt from tax unlike interest income in NRE account. Hence, the interest accrued will be taxable in India. Banks will deduct 30 per cent tax from the interest credited to your account irrespective of the tenure of the FD's.

Tax on long-term capital gains (units sold which were purchased and held for more than one year) on sale of mutual funds will attract tax at 10 per cent.
Since you are an NRI, it is advisable to keep funds in NRE account in case you desire repatriation and interest on NRE account is not taxable.

I am an NRI who shall be returning permanently soon. Can you give me some details on the RFC account?

— Ganesh

  • All persons who have been resident outside India for a continuous period of not less than one year can open RFC account (short visits to India to meet family/relatives/on medical grounds to be ignored while computing continuous stay abroad)
  • RFC can be maintained in any convertible currency
  • RFC can be opened as current, saving or Fixed Deposit
  • All funds held abroad can be transferred to RFC account
  • Funds in RFC account can be freely utilised for any bona fied remittance outside India
  • Withdrawals and payments from RFC is freely allowed in India
  • If an RFC account holder again becomes NRI he will be allowed to repatriate funds abroad

What are the tax implications of a person of Indian origin who is a resident of UAE on sale of immovable property in India? The property is acquired in 1992.What about the applicability of DTA provisions for the income since Personal incomes are not taxed in UAE? What are the formalities to be completed?

— S Natrajan

Sale of immovable property in India will attract short-term/ long-term capital gains in India. Since the property was acquired in 1992, the transaction will attract tax on long-term capital gains. Since you are resident of UAE, we infer that your residential status in India will be that of an NRI and hence the capital gains will attract a tax of 10 per cent.

The above transaction is taxable in India and existence of DTA does not affect the taxability of Income. DTA will only ensure that the income once taxed in India is not doubly taxed in UAE. Since your incomes are not taxed in UAE this particular transaction will attract 10 per cent tax in India for which you will not be able to avail tax benefit in UAE.

In case you desire to repatriate the funds back to UAE then at the time of purchase of the property you should have submitted a declaration and obtained RBIs' permission.
The sale proceeds will have to be deposited in your bank account

I have been employed in US for the past three months. I cannot send money to India before completing 182 days, without being taxed. Can I send the money to my parents through a friend who has been here for a couple of years. Will that be considered as gift money ?

— K Mehul

You will not be taxed for income earned by you abroad if you have stayed abroad for a period more than 182 days. This calculation will be done at the end of that particular year (March 31). So if your assignment requires you to stay abroad for more than 182 days then irrespective of how many days you have spent, you can send money to India.
You can maintain NRE account in India and give cheques from these accounts to your parents for their day-to-day usage.
Moreover, these transfer of funds to your parents will not be taxed under Gift Tax as the same is not applicable now.

I am a US citizen of Indian origin and have been working in India for the past four years. I received a sign-on bonus in May 1998. In my return, I classified this as a capital receipt since this could not have been deemed to be a revenue receipt - the rationale: no services had been performed for the amount to have been classified as salary. Currently, the ITO is mulling on this issue. Would like to have your thoughts on this.
I am planning to return to the US. I am told that I need a clearance certificate. My problem is that the ITO might not agree to give me the clearance certificate since he is mulling on the capital nature of the sign-on bonus. How do I handle this?

— Rajiv Goel

Since you have stayed in India for the last four years, from the facts given by you, we conclude that your status will be Resident but Not Ordinarily Resident (RNOR). All incomes received and accrued in India will be taxable in India.
In the present case you are receiving the sum (sign-on bonus) the taxability of which would depend upon the circumstances under which it is received and the documentation which is done for the purpose.
If the circumstances go to prove that the money received by you is in consideration for signing a contract which pertains to or is in the course of your business or employment, then it would be taxable as your income.
You may request your ITO to issue the IT Clearance certificate by furnishing a bond and two sureties.

I am an NRI working in the US for the past three months.I would like to send some money to my parents in India. My father has got an account in a nationalised bank. Will I be able to mail them a check bearing a value, so that my father can encash the check to his account?

— Suresh D S

You can send the cheque which, your father can deposit in his account without attracting any tax incidence. Such transfers are considered as gifts by you to your father.
You can choose to open NRE account here and keep issuing cheques from these accounts to your father.
You can also check with Citibank as they are having a better account with in-built operational flexibility which will help you to operate the account better.

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