Tax Column

I am a non-resident, foreign citizen with an OCI card. I own certain investments in Indian listed companies. I am planning to sell this investment to another nonresident foreign citizen residing outside India. Is there any tax implication on me since the transaction is between two non-resident foreign citizens with bank accounts outside India? [EasyDNNnews:PaidContentStart]

The transaction between two nonresident foreign citizens is with respect to assets which is situated in India. The shares of Indian listed companies are nothing but assets situated in India. Therefore, the transfer of such assets always attracts tax implications in India irrespective of whether the buyer or seller are resident or non-resident. Therefore, although you are a nonresident foreign citizen, the transfer of shares of Indian companies to another non-resident foreign citizen makes you liable to pay capital gain tax, if any, in India. 

I am a resident Indian citizen. During the current financial year, I have received a gift of ₹20 lakh from various individuals who are not my relatives. Will this attract any tax implications? 

Under Section 56(2)(x) of the Income Tax Act, if any individual receives any amount, whether as a gift or anything else, more than ₹50,000 from a nonrelative, he or she becomes liable to be charged tax as income from other sources. The maximum tax rate is 30 per cent plus applicable surcharge. Under the Income Tax Act, a gift received is not taxable if it is received from a relative within the definition given under Section 56(2)(x) of the Income Tax Act. 

My son is a non-resident and a citizen of the USA. Last year he acquired a residential flat in India as he holds an OCI card. His Indian income is very meagre – not more than ₹20,000 per annum. Will be required to file his ITR in India? 

Although your son’s income is below the taxable limit, he is required to file his ITR under the 1st Proviso to Section 139(1) of the Income Tax Act. Under this proviso, a person who has no taxable income but is in occupation of immovable property by way of ownership is required to file a tax return. Since your son is a non-resident and a foreign citizen but holds property in India as an owner, he will be required to file an ITR in India every year. You could show nil income but the ITR is mandatory. Non-filing of the ITR may attract a penalty or the IT Department may insist on filing the return by reopening an old assessment. 

I am an individual in the business of developing and constructing residential buildings. During the year I have completed two buildings of which certain flats have remained unsold, which I have shown as stock-in-trade on my balance sheet. Can I give flats shown as stock-intrade as gifts to my wife and son? Will this attract any tax implications? 

You can give the flats held by you as stock-in-trade as gifts to your wife and son. There will be no tax implications in the hands of your wife and son as they receive the flats as gifts from you being husband and father, respectively. However, in your case, the transfer of stock-in-trade by way of gifts would be considered the sale of assets because of the specific provision of Section 43CA of the Income Tax Act. The ready reckoner value of the flat, on the date of the gift, would be considered as sale consideration in your hand and accordingly will be taxed as business income. You will get the cost of construction against this business income. In my opinion, the transaction will also attract payment of stamp duty. 

Could you explain the amended provision relating to capital gain taxation in India? 

The Finance Act 2024 has made certain amendments relating to capital gain taxation. Under the new provision, there are only two holding periods i.e. 12 months and 24 months. The holding period for listed securities is 12 months. The holding period for all the other assets is 24 months, including land and buildings, equity in unlisted companies, etc. The short-term capital gain is now taxable at the flat rate of 20 per cent plus applicable surcharge. 

The long-term capital gain is now taxable at 12.5 per cent plus applicable surcharge. It is increased in the case of listed securities from 10 per cent to 12.5 per cent while it has been reduced from 20 per cent to 12.5 per cent in respect of other assets with effect from July 23, 2024. The indexation benefit which was previously available on the sale of long-term assets has now been eliminated. However, resident individuals have been given the option to compute tax on real estate purchased before July 23, 2024, either at 12.5 per cent without indexation or at 20 per cent with indexation.

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