Tax Column

I am a non-resident Indian citizen under the Income Tax Act as well as FEMA. I have earned money abroad. I desire to transfer the funds from abroad to my NRE | NRO account. Is there any Income Tax implication? Where can I invest? [EasyDNNnews:PaidContentStart]

If you are a non-resident under the Income Tax Act, then any income accrued or earned outside India is not taxable in India. From your question, what I understand is that you have earned income abroad while you were a non-resident and now you want to bring money to India. On receipt of the amount in your Indian bank account, there will be no tax implication at all since it is out of your savings abroad and you are bringing money to India. 

Just ensure that you are still a nonresident at the time of bringing money to India. However, if you are a resident at the time of bringing the surplus amount to India, the IT Department may insist on evidence about having earned the amount as a non-resident Indian. If you deposit the amount in your NRE account, the interest earned on fixed deposits is exempt under Section 10 (1) (iv) of the Income Tax Act provided you were a non-resident under FEMA. If you bring money into your NRO account, the interest earned thereon is taxable in India. 

I am a resident individual. I hold 2,000 shares of A Limited which I acquired prior to February 1, 2018. Subsequently, I received bonus 4,000 shares. I desire to sell all the 6,000 shares during the current financial year. Will I be entitled to have a fair market value as on January 31, 2028 in respect of all the shares as cost? What would be the holding period of the bonus shares and what would be the tax rate? 

The cost of additional 4,000 shares would be taken as nil in view of the specific provision in Section 55 (2) (iia) (aa) of the Income Tax Act. The entire sale consideration will be considered as a capital gain. Therefore, you will be entitled to take the fair market value as of March 31, 2018, in respect of 2,000 shares only. Further, the holding period of bonus shares will be reckoned from the date of allotment of such an issue. Therefore, on the date of the proposed sale, if the holding period of the bonus shares is less than one year, it will be considered a short-term capital asset and if it is more than one year it will be considered a long-term capital asset. 

As you are likely to sell all the 6,000 shares in the current financial year i.e. after July 23, 2024, you will not be entitled to indexation in respect of the original 2,000 shares. The long-term capital gain would be taxed at 12.5 per cent plus the applicable surcharge and short-term capital gain would be taxed at 20 per cent per cent plus the applicable surcharge. Further, long-term capital gain can be reinvested in a residential house if you don’t have more than two houses. If you have any unabsorbed long-term loss of earlier years, the same can be set off against the current year’s long-term capital gain. 

I am seeking retirement from my job after working for more than 40 years in a multinational company. On retirement, I am going to receive gratuity, leave encashment and non-compete fees. Could you explain the taxability of these allowances in my hand? 

Gratuity received on retirement is exempted to the extent of least the following: (a) ₹20,00,000, (b) Half month’s salary for each completed year of service, and (c) Actual gratuity received. Therefore, under Section 10 (10) of the Income Tax Act, the maximum gratuity is exempted up to ₹20,00,000. If you receive more than this amount, the same will be taxable at the normal rate of taxation. Similarly, leave encashment on retirement would be exempt to least 10 months’ salary calculated on the basis of the average of the last 10 months' salary of ₹25,00,000 or the actual amount received. Therefore, if you receive leave encashment over ₹25,00,000, then only that amount is exempt and the excess is subject to taxation at a normal rate of tax. Non-compete fees paid to you on retirement are fully taxable. 

I, as an individual woman, run tuition classes from my house, catering to the needs of about 50 students per month. My annual gross tuition fees amount to ₹80 lakhs. Can I offer my income under the category of presumptive taxation? 

In my opinion, you are engaged in a business activity i.e. imparting education and training to various students. This is a systematic business activity and therefore it falls under the provision of Section 44 AB of the Income Tax Act which is applicable to determine business income on a presumptive basis. Giving tuition to various students does not fall in any of the clauses to which the provision of Section 44 AB are not applicable. 

Under this section, the gross fees received should not exceed ₹2 crore. Therefore, for up to ₹2 crore you can file your ITR by declaring business income at 6 per cent of the gross fees if 95 per cent of the fees received and expenses incurred are through account payee cheques. If your cash expenses or fees exceed 5 per cent, the tax rate is 8 per cent of the gross fees once you follow Section 44 AD. You need not maintain books of accounts or carry out an audit.

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