Wednesday 7 September 2011
Government shemes for Tax Benefits
The Government of India has introduced schemes for the benefit of tax saving for NRIs and PIOs by the way of investments. Following are the tax exemptions that NRIs and PIOs can enjoy.
Tax Exemptions from Income Tax:
Income from the investments cited below is totally exempted from tax:
Deposits made under the following bank accounts:
Non External Rupee Account (NRE) [Tax exemptions relating to NRE will cease immediately when the NRI/PIO becomes the resident of India.]
Foreign Currency Non-resident Account (FCNR) [Interest on FCNR will continue to be tax free as long as the NRI continues to be Resident not an Ordinarily Resident.]Units of Unit Trust of India (UTI), mutual funds, bonds, securities and saving certificates (as per the conditions mentioned under the Income-tax laws and regulations).
Dividends declared by Indian companies.
Long term capital gains from transfer of equity shares in a company and/or equity oriented schemes of Mutual funds that are subject to securities transaction tax.
Tax Exemptions from Wealth Tax
The Finance Act 1992 has considerably reduced wealth tax levied on NRIs and PIOs. w.e.f. 1st April, 1993, wealth tax is charged only on non-productive assets like urban land, buildings (except one house property), jewellery, bullion, vehicles, and cash over 50,000/- etc.
The current rate of wealth tax is 1% on the cumulative market value of taxable assets as on 31st March every year in excess of Rs.1.5 million.
Tax exemptions from Gift Tax
Gift Tax Act, 1958 has been repealed with effect from 1st October, 1998 and as such, Gift Tax is not chargeable on any gifts made on or after that date.
With regard to gifts of foreign exchange or specified assets made by NRls to their relatives in India, it should be noted that:Gifts made by an NRI/PIO to his or her spouse, minor children or son’s wife will involve clubbing of income and wealth in the hands of the donor-NRI/ PIO.
*In the case of gifts to minor children the clubbing of income, as above, will cease upon such children attaining the age of 18 years.
*All gifts received by residents from NRls/PlOs may be subject to the tax authorities requiring the recipient to provide evidence as regards the identity and financial capacity of the donor and genuineness of the gift.
The Income Tax Act has now provided that any sum of money exceeding Rs.25, 000 received without consideration (i.e., gift) by an individual from any person on or after 1st September, 2004, the whole of such sum will be chargeable to income-tax in the assessment of recipient (i.e., donee) under that head “Income from other sources” for and from assessment year 2005-06 and onwards.
Gifts on occasion other than marriage, for example, birthday, marriage anniversary and other social occasions, religious ceremonies etc., would be taxable as income. Gifts received on the occasion of the marriage of the individual, irrespective of any limit, (but within reasonable limits) would not constitute income.Under the Foreign Exchange Management Act, 1999 no approval from Reserve Bank of India (RBI) is necessary for the resident donee to hold gifted immovable property outside India provided the said property is gifted by a person resident outside India. General permission, subject to certain conditions, is granted by RBI for the resident donees to hold foreign moveable properties such as shares and securities gifted by NRI/PIO donors.
Investment Opportunities and Incentives:
The Government of India has laid down certain rules for investments by NRIs and PIOs in the loans, securities, shares etc. Let’s take the investment opportunities to open to NRIs and PIOs one by one.
Remittance Facilities
Remittance of capital assets in India by a person whether resident in or outside India requires the approval of the Reserve Bank of India. Other rules laid down by the Foreign Exchange Management Act, 1999 (FEMA) with regard to the remittance facilities for NRIs and PIOs are as follow:
Remittance of assets by NRI and PIO:
NRI/PIO may remit up to 1,00,000 per year out of the balance in his Non Resident (ordinary) account or from the sale proceeds of assets. NRI/PIO may remit sales proceeds of immovable property sold by him out of rupee funds provided that he owned the property for a period of not less than 10 years. Repatriation of sale proceeds of residential property purchased by NRIs /PIOs out of the foreign exchange: NRIs/PIOs can repatriate sales proceeds of maximum two residential properties purchased by them. NRIs/PIOs can remit funds of application/earnest money with interest on account of non-allotment provided that the original payment was made out of NRE (Non External Rupee) or FCNR (Foreign Currency Non-resident) account.
Remittance of current income:
NRIs/PIOs are permitted to remit their current income like rent, dividend, pension, interest etc. provided that they do not maintain NRO (Non resident ordinary rupee) accounts. This can be done only after an authorised certification by a Charted Accountant certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid for.
NRIs/PIOs can credit the current income to their Non-Resident (External) Rupee account provided the authorised dealer is satisfied that the credit represents current income of the non-resident account holder and income tax thereon has been deducted/provided for.
Remittance of Rent:
NRIs/PIOs can freely rent out their immovable property in India without the prior permission of the RBI. If the house rented by the NRI/PIO is financed by the way of a housing loan, the entire rental income (even if it is more than the prescribed instalment) has to be adjusted towards the repayment of the loan. If the rental income is less than the prescribed instalment, the borrower should remit the outstanding loan amount from abroad or from his NRE, FCNR or NRO account in India.
International Credit Cards:
NRI and PIOs can apply for international credit cards without the prior permission of the RBI.
