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"What are the tax implications for an NRI selling shares of Indian companies?"

Readers' Note: Please keep your questions short.

I am an NRI, holding shares in Indian companies which I bought six years ago (when I was a resident Indian). Since then, the stock prices have gone up substantially and I want to sell them. What are the tax implications? I presume I will have to pay long-term capital gains taxes at 20 per cent. Will the tax be deducted at source? I do not want to go through the process of having to file a tax return because it is so painful. Please advise.

— Shyam Chulki

You are liable to pay long term capital gains tax. The tax is computed as follows:

Sale consideration less the indexed cost of acquisition.

The indexed cost of acquisition is calculated by applying the inflation index announced by the authorities each year. The rate of tax applicable is 20 per cent. There is another option wherein you can calculate the capital gains without considering the indexation in which case the rate of tax applicable is 10 per cent. There is no deduction of tax at source.

But you are required under the law to file your return disclosing the amount of capital gains.

I am an NRI getting a salary from a US firm. I am sending money to my father. Will that amount comes under any tax or will my father have to pay a tax on the amount I send?

— Venkatapurna, SubbaraoX

You are an NRI employed with a US firm and also receiving a salary from them. According to the Indian Income Tax Act, income earned and received outside India by an NRI is not taxable in India. As such the income earned by you in the US is not taxable in India. Also, please be informed that Income Tax is levied on income and not on any remittance. Your father will not be required to pay any tax on any remittances made by you to him.

I was an NRI but I have now returned to India for good. I have deposited my money in FCNR Deposits. What is the tax implication?

— K Ravishanker

Assuming that you have become a "Resident" for tax purposes in India, you would be liable to pay tax as a Normal Resident with an option of a flat rate at 20 per cent upto the maturity of the deposit.

I understand that interest on NRNR accounts is exempt from payment of income tax. But, in case of NRIs who return to India for good, they are entitled to keep their NRNR fixed deposit accounts till the time of maturity. Is the interest on NRNR fixed deposits still exempt, notwithstanding the change of their status as residents?

— Jagadeesh Bharadwaj

The foreign exchange regulations (not forming a part of the Income Tax Act, 1961) contain the rules which permit an NRI to maintain his money in foreign currency for a certain period of time even after he loses the NRI status. The exemption from tax to the NRI is granted till such time as the money can be held in foreign currency account under the foreign exchange regulations. The interest earned on the balance lying in a deposit account maintained in foreign currency with any scheduled bank is exempt from Income Tax under Section 10 (15) (fa) of the Income Tax Act, 1961.

I'm an NRI living in the US for the past five years. I bought some agricultural land in Tamil Nadu and my family (brother and mother) is looking after it. What are the tax implications on the income from the land? The property is registered in my name. I'm also planning to purchase a residential property. Should I register the residential property in my name or will I be better off registering in my wife's name?

— Baskaran, Karuppapillai

Agricultural income is exempt from income tax under section 10 (1) of the Income Tax Act, 1961 if the income received is of the following nature:
a) any rent or revenue from land used for agricultural purpose
b) income derived from agriculture from such land by: i) agriculture, ii) income derived from performance of any process to render the produce marketable, by the cultivator or a receiver of rent in kind and, iii) sale of the produce without any process other than the process mentioned in (b) above
c) any income derived from any building owned and occupied by the receiver of rent or revenue or occupied by the cultivator or receiver of rent in kind with respect to which any process mentioned in para (ii) and (iii) of sub clause (b) is carried on.

The above is subject to the building being in the vicinity of the land and is used by the assessee for dwelling purpose or as a store house or other building and the land being assessed to and revenue

If you and your wife continue your NRI status, it would not matter in whose name you register the residential property. A complete advise can be given only with full information of other sources of income for you and your wife.

1) I am an NRI working in the US. If I want to send my money back to India, can I send it into a joint account with my father and I as account holders? Is there any tax that either of us need to pay?

2) Can I buy property in India under my father's name (to make processing easier)? Is there any applicable tax?

— Gopi K Vaddi

1) You can remit the money into a joint account with your father without attracting any income tax. However, if your father is not an NRI, the money will become non-repatriable.

2) You can buy a property in your father's name if he does not have any taxable income in India and if the property is going to be used by him for his own occupation.

I am an NRI planning to come back to India permanently. Do I need to pay any wealth tax in India?

— Cittarusu Rammachandre

According to section 5(v) of the Wealth Tax Act: No wealth tax shall be payable in the case of an assessee, being a person of Indian Origin or a citizen of India who was ordinarily residing in foreign country and who, on leaving such country, has returned to India with the intention of permanently residing therein. The following are not chargeable to tax for seven successive assessment years (commencing from the assessment year next following the date on which such person returned to India):
a) moneys brought by him into India
b) and the value of assets brought by him into India
c) moneys standing to the credit of NRE account in any bank on the date of his return
d) value of assets acquired by him out of such moneys referred to in (a) and (c) within one year immediately preceding the date of his return and at any time thereafter.

Accordingly, you will be exempt from Wealth Tax if you satisfy the conditions mentioned in the above section. Non-fulfillment of any of the above conditions will render you liable under the Wealth Tax.

I am a professional living and working in the US for the last two and a half years. I have always filed all my tax returns prior to coming to the US and I even have an Income Tax clearance certificate. Now I want to buy a flat in India. Do I have to worry about any tax-related formalities? Are there any other legal implications?

— Mukesh Soni

Purchase of property does not involve any tax formalities except in cases where the value of property exceeds a specified limit ranging from Rs 20 lakh to Rs 75 lakh depending on the city where you purchase the property. In such cases, you are required to submit the agreement for the approval of the authorities. As regards other legal implications, it is outside the purview of personal taxation.

I am an NRI working in the US. I hold some ADRs of Satyam Infoway here. Please advise whether a resident Indian can own stocks listed in US exchanges and how taxation takes place on earnings from these stocks?

— Pravin Kumar

Income earned outside India is exempt from tax in case of an NRI. Since the security held by you is a foreign security, the income earned on such investment is deemed to be earned outside India and hence not taxable. Regarding the question of holding of stock listed on US exchange by resident Indians, it is governed by exchange control regulations and hence we would not be able to advise you on it.

I have come abroad a year ago and I guess that qualifies me as an NRI for 1999-2000. Till now I have not been able to save and send money home. But now I want to. I have no clue on the types of accounts. Can you please explain? Can I keep my savings in dollars or do I need to convert to rupees? If I convert them into rupees, can I convert it to dollars later? What about tax on interest earned on these savings?

— Mahesh Rao

Most of your questions are outside the scope of personal taxation. Hence we are not in a position to answer it. However, interest earned on savings held in an NRE account or a foreign currency account, is fully exempt from tax.

(You are requested to ask banking questions in the Personal Banking section.)

Earlier:

"I am an NRI staying in the US on H1-B visa. I have rented a portion of my house in India and I am paying mortgage for it. What are the tax implications?
"If an NRI gifts Rs 1 lakh to a relative from his NRO account in India does he have to pay any Gift Tax? (The NRO account is funded from abroad in US dollars.)"
"Do i need an income tax clearance certificate if i go abroad for a two-year contract?"
"Will my father be taxed if I send him money to buy a flat in my name?"
"What is the difference between personal taxation of an NRI and of a resident but not ordinarily resident?"
"We are software engineers investing in the form of NRNR deposits, FCNR deposits, etc. How will we be taxed?"
'I am an NRI getting salary from a US firm. Can I invest in Indian securities? What are the tax implications?'

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