Property sale proceeds can be repatriated entirely

A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.

A Rediff India Abroad feature:

There is some change with respect to the tax treatment of STT in the budget for 2008-09? What is the exact nature of this change and how will affect the taxpayer?

--- John Joseph

Earlier, for a trader in securities, STT paid was allowed as a credit against the tax payable on income from securities transactions. Thus STT worked like TDS (Tax Deducted at Source) or advance tax paid. Now, this set off will not be allowed but instead STT can be claimed as a deduction against income. Therefore, from a 100 percent deduction available earlier, now the deduction will be up to 30 percent.

However, note that this is not applicable to an investor who classifies his or her income from securities transactions as short-term or long-term capital gains as the case may be.

For such investors, STT was anyway not a deductible item. This change will only be applicable to those who treat their securities transactions income as business income.

Question on investing in real estates in India.

I am an American citizen. If I invest in a property in India for example cost Rs 50 lakh (Rs 5 million) and after a year sell it for Rs 55 lakh (Rs 5.5 million), is it possible for me to repatriate the cost of the property (profit – tax)?

Also what should I have to prove that Rs 50 lakh investment was originally in dollars? Or do I have to sell it to someone overseas paying in foreign currency to bring any money back?

--- Menon

Yes, you can repatriate the entire sale proceeds, less tax. You may sell the property to resident Indians or to Non-Resident Indians.

Maintain photocopies of the check payments made through your NRE (Non-Resident External) account. This is proof enough.

Is it possible to obtain Capital Gain Tax exemption for NRIs when the capital gain proceeds (credited in Non-Resident Ordinary account) invested in following options:

1) Capital gain proceeds invested in long-term (3 years) fixed deposits in NRO account.

2) 54EC capital gain bonds. Please advise what are the 54EC bonds are currently available. Whether any bank can handle it for the customers?

3) Please advise what are the tax saving bonds currently available?

4) GOI bonds. Pleases classify.

--- Rashid

Exemption from capital gains can be claimed only against 54EC capital gain bonds only. The tax on all long-term capital gains that are chargeable to tax can be saved by investing, within six months, the amount of capital gains in infrastructure-related bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC), under section 54EC. The lock-in period is three years.

The current interest rate is around 5.5 percent and this is fully taxable. The ceiling on this investment is Rs 50 lakh per financial year.

The Indian budget presented on February 29, 2008 has made some changes in the Securities Transaction Tax (STT) in respect of derivative transactions. What is the exact nature of the modification?

--- Vinod

Earlier, STT was payable in respect of a derivative transactions @0.017 percent by the seller on the entire value of the deal. The purchaser had no STT liability. Now, if the option is exercised the purchaser has to be pay 0.125 percent on the settlement price of the option. The following table specifies the details:

Bank deducts TDS on my accounts @30 percent. I understand that this is in accordance with Reserve Bank of India regulations. Could you tell me more about this, please?

--- Thakkar

Form-13 enables a taxpayer to make an application to his income tax officer for deduction of income tax at any lower rate or nil rate. Then the income tax officer may issue an appropriate certificate in Form-15AA to that effect to each of the persons responsible for applying TDS.

In theory, an NRI can apply to the ASSESSING OFFICER in India for TDS exemption (complete or partial) in Form-13.

The officer may then issue Form-15AA directly to the all the persons who are required to apply TDS instructing them not to apply TDS or apply it at lower rate. The Form-15AA would be valid for the current financial year or as specified in the Form. In practice, such letter are issued by income tax officers only under mitigating circumstances. Also, this letter is required to be obtained for every year.

Under the Income Tax Act, it is mandatory to apply TDS on NRO interest. But there is no income threshold under which TDS is not chargeable. However, TDS (= Withholding Tax) is applicable @30.9% (plus surcharge, if any) on the entire NRO interest (without any threshold) and nothing can be done in practice, to avoid it.

The TDS is applicable on accrual basis on cumulative deposits. The only practical recourse open is to claim refund by filing tax returns.

The TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates which again depend upon your income and the exemptions, deductions and rebates you can claim.

The TDS can be set off against your actual tax payable and pay only the difference. In case the TDS is higher than the tax liability, you will get a refund.

If your tax liability is less than the TDS, the only practical way to get the refund is to file the tax returns.