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My wife has inherited land in Kerala from her father, which he had inherited. The land is a subject matter of compulsory acquisition from the National Highways Authority of India. In such a case where there is no trace of cost of land at all, how can we arrive at cost of acquisition for the purposes of Capital Gains?
— Amit
For assets acquired prior to 1981 (either by the purchaser or previous owner from whom the asset is inherited or acquired as a gift), the value as April 1, 1981 has to be adopted as the actual cost. You can get the value of the land as on that date assessed from an official chartered valuer who will provide you with a certificate of the assessed value. This cost can then be indexed as per the declared figure to arrive at the indexed cost. The same can then be reduced from the sale price to arrive at the capital gain amount. Also, regardless of the period of holding of the land by your wife, the gain will be long-term capital gain.
I have been out of India since the last 12 years. I will be returning for permanent settlement in December. I am not clear about when the Resident not Ordinarily Resident status it will apply and for how long. Also, to whom should I apply to get my RNOR status? If I get the RNOR status, any interest accrued to my Term deposits and Savings Bank deposits in NRI accounts will not attract any tax in India, right?
— Vivek Bhasin
Since you are returning in December, for financial year 2014-15, you will continue to be a Nonresident Indian even though you have returned to India. This is by virtue of the fact that you will end up spending less than 182 days in India in the financial year.
You will be RNOR for the next two financial years i.e FY 15-16 and FY 16-17. Note that the RNOR status is a sub-set of the Resident Status. You are Resident (but Not Ordinarily Resident). Consequently, you are not entitled to continue your NRI-related bank accounts and should get them redesignated as Resident accounts.
Also, the interest on the erstwhile NRE account (now redesignated as Resident deposit) will be taxable in the normal course. It is only the interest on the Foreign Currency Nonresident account that will continue to
be tax-free till such time that you retain your RNOR
status.
The RNOR status is automatically applicable to a person based on his or her length of stay abroad — you don’t have to apply to any authority at any time for the same.
I am a United States citizen. I receive Social Security pension income. I have not yet applied for Overseas Citizenship of India. If I want to stay for a prolonged time in India, six months or longer, do I have to take permission from any authority? How can I do so without losing my NRI status? I will be depending mainly on my social security checks to take care of my living expenses for which I will need to transfer the money to India; will the social security income become taxable in India? — Krishna Raj
The law for its part welcomes you to India without having to take any special permissions etc as long as you have a valid visa. Since you are no longer an Indian citizen, for any stay beyond six months, you will have to register your presence at a local police station. If you wish to bypass this process, then you would need to obtain an OCI card.
Once you cross the 182 days limit in a FY, you will become a Resident of India. As such, your global income will be taxable in India. Under the Double Tax Avoidance Agreement treaty that the US has with India, Social Security payments are taxable, if at all, only in the US and not in India. However, other income could become taxable after the first two years.
For the first two years of your stay in India, your status would be that of RNOR, where any foreign income remains tax-free in India.
My family and I live in New Zealand. Recently the building in India in which I owned an apartment was demolished for a redevelopment project. The developer is allotting a new flat to me, which is slightly bigger. I have already entered into an agreement with another person (an Indian resident) to sell the new flat. Since I have not paid for this new flat as such, for capital gain purposes, would the cost be zero? Is there a way to save the tax by buying government bonds, etc?
— K Ramchandran
It is absolutely necessary for you to get the value of the redeveloped flat that you owned as on the date you were given possession of the flat by the builder. This can be obtained from the builder or the neighbors who have bought their flat from the builder. If this is not possible, you can get the flat assessed for its value on that date from an official valuer. This is your deemed cost of acquisition of the redeveloped flat.
If you had been the owner of the redeveloped property for a period of over three years, compute the long-term capital gain based on this deemed cost of acquisition. You can save the 20 percent tax on this capital gain by investing this amount, (limited to Rs 5 million or $83,000 per FY), in Capital Gains Bonds of the Rural Electrification Corporation or NHAI. If you had been occupying the property for less than three years, you will earn short-term capital gains.