TDS is not the same as your tax liability

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

A Rediff India Abroad feature:

I am a non-resident Indian and person of Indian origin. In December 2005, I purchased two residential properties and a commercial one. I paid through my NRE account. What is the tax implication when I sell these properties and how can I bring gains outside India in foreign exchange: US dollars? What is the rate at which I would be taxed on capital gains/loses, if any?

-- Sudhakar Shah

Short-term capital asset is a financial asset held for 36 months or less immediately preceding the date of transfer. An asset which is not a short-term asset is a long-term asset.

Long-Term Capital Gain is to be computed by deducting from the full value of the consideration i) any expenditure incurred in connection with the transfer ii) indexed cost of acquisition and iii) indexed cost of improvement.

The LTCG is taken as a separate block and charged to tax at a flat rate of 20.4 per cent. No deductions are allowed under Chapter-VIA like u/s 80C, 80D etc, for LTCG.

The tax on all long-term capital gains which are chargeable to tax, can be saved by investing within six months the amount of capital gains in infrastructure-related bonds of the NHAI or REC u/s 54 EC. The lock-in period is three years. The current interest rate is around 5.5 per cent and this is fully taxable.

The indexed cost is computed by multiplying the cost of acquisition with the ratio of the Cost Inflation Index of the year of sale by that of the year of acquisition.

The STCG is included in the other income of the assessed and taxed at the normal rate applicable to him.

Section 6(5) of FEMA allows a person resident outside India to hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or has inherited it from a person who was a resident in India.

As per FEMR (Acquisition and transfer of immovable property in India), repatriation of the sale proceeds of immovable property other than agricultural land, farm house, plantation property in India by a resident outside India who is a citizen of India or a PIO, is allowable provided the property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of FEMA.

The amount allowed to be repatriated should not exceed the amount paid for acquisition of the property i) in forex through normal banking channels or ii) out of FCNR account or iii) the forex equivalent, as on the date of payment, of the amount paid out of NRE account.

The repatriation of sale proceeds is restricted to not more than two residential properties. There is no restriction on the number in the case of commercial properties.

I am a regular tax payer filing my income tax return for the last 25 years. My son lives in the US. I wanted to send him $170,000 for his personal use (for buying a house). Can I send it to him as a gift? Will any approval of the Reserve Bank of India be required for this purpose or can I just instruct my banker to send him the money? Should a gift deed be prepared and got accepted from him in order to prove the sending of the money?

-- Pawan Goyal

AP (DIR) Circular 9 dated 26.9.07 has enhanced the existing limit of $100,000 per financial year (April to March) for residents to $200,000 for investing abroad as also for gifts and donations. Under this facility individuals can acquire and hold immovable property or shares or debt instruments or any other asset outside India such as objects of art subject to the foreign trade policy of the government of India. They can also open, maintain and hold forex accounts with banks outside India. They can also effect gifts and donations.

The individual will have to designate a branch of an AD where he has maintained the account for at least one year prior to the remittance.

I am an NRI and a homemaker. I have fixed deposits in my NRO account, which are earning interest. I need to confirm if my understanding on taxation is right. If not, please clarify.

1. To my knowledge, if the interest earned on these deposits exceeds Rs 5, 000 per annum then, tax deducted at source is applicable.

2. Since I am a housewife and have no other sources of income, my tax exemption limit (2007-2008) is Rs 135,000 (for women).

3. Say, I earn a total interest of Rs 135,000 or below this exemption limit. Then, I can submit Form15G to the bank and avail the tax exemption. Hence, I don't have to pay any tax.

4. But, if my interest earned exceeds my exemption limit, say, it's Rs 150,000 or above.

Then, to calculate my taxation amount and rate, do I deduct Rs 5,000 as a rebate first, then deduct Rs 135,000 as the exemption limit and pay tax on remaining balance of interest Rs 10,000 at 10 per cent rate? In such a case, should i still submit Form15G to the bank and let the bank deduct TDS only on the amount above Rs 135,000?

Or Do I have pay tax on the entire amount, Rs 150,000, at 20 per cent? In other words, will the bank deduct TDS on the entire sum?

5. How do I claim tax refund? Is there a time limit before which I should do so?

6. What is the last date for filing returns and can it be done from abroad?

-- P Subhash

The interest on NRO is fully taxable at the rates applicable to residents. But there is no income threshold under which TDS is not chargeable. However, TDS is applicable @30.9 per cent (plus surcharge if any) on the entire NRO interest (without any threshold) and nothing can be done in practice to avoid it. TDS is applicable on accrual basis on cumulative deposits. The only practical recourse open is to claim refund by filing tax returns.

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.

If your tax liability is less than the TDS, the only practical way to get the refund is to file tax returns. Form 15-G (for non-seniors) or 15-H (for senior citizens), requesting for non-application of TDS is not available for NRIs.

For residents, (an RNOR is also a resident) TDS becomes applicable only when the annual interest from a branch of a bank is over Rs 10,000.

The threshold for senior citizens and non-senior females is higher at Rs 1,95,000 and Rs 1,45,000 respectively.

These higher thresholds are not applicable to NRIs. For them the normal threshold is Rs 1,10,000.

You can use the facility of e-filing or employ a consultant in the place of your residence in India before becoming an NRI.

The last date for filing the returns is July 31.