FAQ's

Income Tax

FEMA/RBI Regulations

 

Background

In India, Taxation on Gift was regulated by the Gift Tax Act 1958. As per the Gift Tax Act 1958, the donor was required to pay Gift Tax on all gifts in excess of a specified amount. However, with effect from October 1, 1998 (By Honourable Finance Minister Shri Yashwant Sinha), Gift Tax Act got demolished and all the gifts made on or after this date were free from tax. 

In 2004, the act was again revised partially by the way of inserting provisions under Income Tax Act 1961 (‘Act’) (By Shri P Chidambaram, then finance minister of UPA Govt). A new provision was inserted in the Act under section 56 (2). Thereafter, on regular basis, amendments have been made in the said section through various Finance Budget Proposals. Initially, the Gift received in Cash was subject matter of tax in the Act. Thereafter, the Gift received in Kind has also been made subject matter of tax in the Act.

In conclusion, the journey of Taxation on Gift has taken a U turn i.e. taxability changed – from the hands of Donor to – in the hands of Donee. Further, in today scenario, all kind of Gifts, whether received in Cash or in Kind are taxable in the hands of Donee. 

 

Taxation of Gifts - Current Law

Under the present law, salient provisions of Taxation of Gift are as under:

- Gift Tax Act 1958 was not applicable to the J&K. The new provisions, inserted in the Income Tax Act, are applicable in J&K as well.

- As per the present legal position, Gift is taxable in the hands of Donee and not the Donor.

- Gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be taxable and shall be included in the Donee’s Taxable Income. Therefore, total gift amount up to Rs 50,000 received during a financial year is exempt. 

- Gift received in Cash or Kind is income of the person receiving the gift.

- Gift can be Movable as well Immovable Property. Both are considered as Taxable Income under the Act if received without consideration.

- Gift received in Kind shall be Taxable at a Fair Market Value (FMV) of the Gift. If the Gift is received at a lower price than the FMV, then the difference between FMV and amount paid shall be considered as Gift amount. 

- Gift received through following modes are exempt and not to be considered as income -

Received from Relative (Relative is defined in the Income Tax Act)

Received at the time of Marriage of Gift Receiver

As inheritance (i.e. through will)

In contemplation of death of the payer

From any local authority

From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10

From any trust or institution registered under section 12AA

 

- For the purpose of Gift “relative” means —

• Spouse of the individual;

Brother or sister of the individual;

Brother or sister of the spouse of the individual;

Brother or sister of either of the parents of the individual;

Any lineal ascendant or descendant of the individual;

Any lineal ascendant or descendant of the spouse of the individual;

Spouse of the person referred to in clauses above

 

- For the purpose of Gift “Property” means —

• Immovable property being land or building or both;

Shares & Securities;

Jewellery;

Archaeological collections;

Drawings, Paintings, Sculptures or any work of art.

Bullion

By NRI Tax Service - May 19,2015

Scheme of LRS

- Foreign Exchange Management Act 1999 (FEMA) restrict the drawal of forex except to the extent allowed by its Regulations.

- Under LRS, Indian Residents are allowed to remit prescribed amount (Per FY) of forex outside India to anyone for all permissible capital account transactions, without any prior approval of RBI. They just need to contact an Authorised Person/Dealer for this (i.e. Full Fledged Money Changer, Banks).

- LRS is available for Resident individuals including minors. Limit can be consolidated for whole family.

- For undertaking transactions under this Scheme, resident individuals may use the application-cum-Declaration Form (mentioning that funds belong to remitter and will not be used for prohibited purposes). 

- It is mandatory to have PAN number to make remittances under the Scheme. 

 

Limit of LRS and, Increase in LRS by latest RBI Review

- Reference to latest Circular (June 1, 2015 – A.P. (DIR Series) Circular No.106), RBI has announced certain changes in this facility. A gist of same is as under: 

- Effective this Circular, LRS Limit is increased from 125,000 USD to 250,000 USD (per FY). Earlier, since long, the LRS limit was $200,000 till August 2013. However, after rupee tumbled to its all-time low to Rs 68.85 per USD, in Aug 2013 RBI was forced to reduce the limit to $75,000. Thereafter, the Rupee has recovered well, and on June 3, 2014, RBI has increased the limit to $125,000. Now, with further recovery in Forex Reserves, and also showing its acceptance to new Govt Liberal Policies, RBI has again increased the LRS limit to 250,000 USD per FY.

- The permissible capital account transactions, for which the LRS limit is allowed, are: (i) Foreign Bank Account (ii) Property (iii) Investments (iv) Setting up of Wholly Owned Subsidiary/Joint Venture (v) Rupee Loan to Relative NRIs.

- To rationalize the current account and capital account transactions, and to facilitate ease of transactions for Resident Individuals, limit of all permitted current account transactions shall be subsumed under the overall limit of 250,000. Hence, resident individuals can now avail upto 250,000 USD per FY for permitted current account or capital account transaction or combination of both. However, for the purposes of Emigration, Medical Expenses Abroad, Studies Abroad, as per the requirement of country/medical institute/university, forex can be availed in excess of overall limit.

- This facility is not allowed for remittances wrt prohibited or illegal activities such as margin trading, lottery etc.

- AD is not allowed to extend funded/non-funded facilities to resident individuals to facilitate remittance under this scheme.

- For remittance under this scheme, the applicant should have maintained the bank account with the bank for more than one year before the remittance is being made.

- Remittance under this scheme is not allowed to countries notified as non-cooperative countries/territories by FATF.

- ADs will furnish on monthly basis information on the number of applicants and total amount remitted under the scheme to RBI.

 

This article is useful and relevant for all Resident Indians as well as NRIs. It also clarifies various general doubts & frequently asked questions of Individuals wrt Forex Drawal Laws, such as:

- What are the regulations for remitting forex for sending money abroad to buy immovable property abroad?

- Can I set up a company abroad without obtaining RBI Approval?

- I am an Individual. Can I make investments abroad? What are the regulations for making Investments Abroad?

- Can I lend money to my NRI relative? I am an NRI. Can I borrow money from my relatives in India?

- I am an Individual. Can I open a Bank account abroad? Can I deposit money in my Bank Account Abroad?

- I want to settle my children abroad in future. Can I buy some investments and property abroad?

- What are the limits of remitting foreign exchange abroad?

- I am an Individual resident in India. I have a wife and two small kids. What are my limit for remitting foreign exchange abroad for buying some investments, opening a bank account and purchasing an immovable property?

- Which are the countries, where I can remit forex under LRS scheme?

- What are the formalities for remitting forex under LRS Scheme?

- To whom should I contact, for remitting forex under LRS Scheme?

 

By NRI Tax Service: June 12, 2014

Analysis By

S LOHIA & ASSOCIATES
CHARTERED ACCOUNTANTS

BUDGET 2015

(Presented by Honorable Finance Minister Sri Arun Jaitley on Feb. 28, 2015)

Contents

 

  • Introduction
  • Budget Impact – Direct Taxes
    • Income Tax Slab Rates
    • Deductions, Rebates & Reliefs
    • Wealth Tax
    • Corporate, International Taxation etc
    • Black Money – Various Proposals to Curb
  • Budget Impact – Indirect Taxes
    • Service Tax
    • Excise Duty
    • Custom Duty
  • Budget Impact on Sensex
  • Things becoming cheaper
  • Things becoming dearer

 

Introduction

The dictionary meaning of budget is a systematic plan for the expenditure of a usually fixed resource during a given period. Thus, Union Budget, which is a yearly affair, is a comprehensive display of the Government’s finances. It is the most significant economic and financial event in India. The Finance Minister puts down a report that contains Government of India’s revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31.

The Budget is the most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. Barring a few exceptions -- like elections – Finance Minister presents the annual Union Budget in the Parliament on the last working day of February. The budget has to be passed by the Lok Sabha before it can come into effect. By this document, we hereby present the tax proposals provided in the budget in a simple language.

Budget Impact – Direct Taxes

Income Tax Slab Rates

  • No change for Individual Tax
  • Additional Surcharge @2% for Super Rich Person (i.e Taxable Income more than Rs 1 Crore)
  • Corporate Tax Rates reduced from 30% to 25%.

Deductions, Rebates & Reliefs

  • Transport Allowance limit (for employees) increased from Rs 800 pm to Rs 1,600 pm.
  • Limit u/s 80D for medical insurance increased by Rs 10,000 i.e. from Rs 15,000/20,000 to Rs 25,000/30,000.
  • For Super Senior Citizen, where there is no medical insurance policy, medical expenses deduction upto Rs 30,000 is proposed (u/s 80D).
  • Deduction wrt treatment expenses, for dependent disabled, u/s 80DD is increased by Rs 20,000.
  • U/s 80U, deduction for disabled person is increased by Rs 20,000.
  • Certificate of Specialist Doctor (in place of Govt Hospital) will also eligible for claiming deduction wrt expenses on specified diseases (u/s 80DDB).
  • U/s 80C, under Sukanya Samridhi Yojna, deduction shall be available for putting money in girl child bank account. Interest Income as well withdrawals are also exempted under this account scheme.
  • Deduction limit for Pension Scheme Investments increased by Rs. 50,000
  • 100 % tax deduction for contribution to Swach Bharat and Clean Ganga Schemes (u/s 80G).

Wealth Tax

  • In a major relief for all rich people, Wealth Tax Act has been abolished wef April 1, 2016 (i.e. AY 2016-17).The details of wealth needs to be filed through income tax return and a substitute tax in the form of additional surcharge (@2%) (For persons earning more than 1 Crore) is proposed.

Corporate, International Taxation etc

  • Corporate Tax Rate reduced to 25%.
  • Threshold Limit for Specified Domestic Transaction, under Transfer Pricing Regulation, increased from Rs 5 Cr. to Rs. 20 Cr.
  • Step towards ease in doing business in India, major clarification in section 9 (i.e. Deemed Accrual) wrt Indirect Transfer clause.
  • Tax rates for Fee for Technical Services reduced from 25% to 10%.
  • GAAR provisions applicability extended from AY 2016-17 to AY 2018-19.
  • Place of Effective Management (POEM) concept in the line of International concept, introduced for the purposes of residential status determination of Foreign Company and Indian company.
  • Fund Managers in India not to constitute as business connection (u/s 9) for Offshore Funds.
  • Incentives provided for investments in Andhra Pradesh and Telangana.
  • CBDT is given powers to bring rules for calculation of foreign tax credit.

Black Money – Various Proposals to Curb

  • Evasion of tax in relation to foreign assets to have a punishment of rigorous imprisonment up to 10 years (non-compoundable), penalty of 300 % and the offender will not be permitted to approach the Settlement Commission.
  • Non filing of return/filing of return with inadequate disclosures to have a punishment of rigorous imprisonment upto 7 years.
  • Undisclosed income from any foreign assets to be taxable at the maximum marginal rate.
  • Mandatory filing of return in respect of foreign assets.
  • Quoting of PAN is being made mandatory for any purchase or sale exceeding the value of Rs 1 lakh.
  • Prohibition on acceptance or payment of an advance in cash (of Rs 20,000 or more) wrt purchase of any immovable property.
  • Concealment of income/evasion of income in relation to a foreign asset to be made a ‘predicate’ offence under PML Act, 2002.
  • PML Act, 2002 and FEMA to be amended to enable administration of new Act on black money.
  • Proposal, for the Benami Transactions (Prohibition) Bill, to curb domestic black money, to be introduced in the current session of Parliament.

Budget Impact – Indirect Taxes

Service Tax

  • Service-tax plus education cesses increased from 12.36% to 14%.
  • New registration to be done in two working days.
  • Service Tax Exemptions withdrawn wrt Mutual Fund Agents services.
  • New Service Tax Exemptions:
  • Services of pre-conditioning, pre-cooling, ripening etc. of fruits and vegetables.
  • Life insurance service provided by way of Varishtha Pension Bima Yojana.
  • All ambulance services provided to patients.
  • Admission to museum, zoo, national park, wild life sanctuary and tiger reserve.
  • Transport of goods for export by road from factory to land customs station.

Excise DutyExcise Duty increased from 12.36% to 12.50%.

  • Online Central Excise Registration to be done in two working days.
  • Concessions available to electrically operated vehicles and hybrid vehicles extended upto 31.03.2016.
  • Excise Duty on Cement increased by Rs 100 per ton.
  • Excise duty increased for Cigarettes, Colas and Water.
  • Conversion of existing excise duty on petrol and diesel (to the extent of 4 per litre) into Road Cess to fund investment.
  • Changes in rate of Excise Duty:

ITEM

Excise Duty before Budget

Excise duty after Budget

Chassis of Ambulance

24%

12.5%

Sacks and bags of polymers of ethylene

12%

15%

Footwear with leather uppers

10%

6%

Custom Duty

  • Concessions available to electrically operated vehicles and hybrid vehicles extended upto 31.03.2016.
  • Prices of Mobile Phones, LED TVs & LED electric equipments made in India will become cheaper.
  • Artificial heart exempt from basic custom duty of 5% and CVD.
  • Changes in rate of Custom Duty:

ITEM

Custom Duty before Budget

Custom duty after Budget

Metallurgical coke

24%

12.5%

Sacks and bags of polymers of ethylene

12%

15%

Tariff rate on commercial vehicle

10%

6%

Budget Impact on Sensex

The impact of Union budget has been seen in the market. The NSE sensex opens with the jump of 200 pts, has gone down upto 500 pts. (approx.) after the budget speech of FM but closed with the hike of 141 pts. on 29,361. The same thing has been seen in the Nifty which opens with 63 pts. hike from the previous day but goes down to 149 pts and the day was closed with the positive 57 pts. on 8,901.

Things becoming cheaper

  • Leather footwear priced above Rs. 1,000 per pair.
  • Locally made mobile phones, LED/LCD panels, LED lights and LED Lamps.
  • Solar Water heater Pacemakers, ambulance and ambulance services.
  • Computer tablets.
  • Agarbattis.
  • Microwave ovens.
  • Refrigerator compressors.
  • Peanut butter, packaged fruits and vegetables.
  • Visit to museum, zoo and national park

Things becoming dearer

  • Mobile Bills.
  • Cigarettes and other tobacco products.
  • Dining & drinking out.
  • Imported Commercial Vehicle
  • Cement.
  • Plastic bags and sacks
  • Business and executive class air travel.
  • Visit to amusement and theme park.
  • Music concerts.
  • Liquid, chit fund and lottery.
  • Aerated, flavored drinks and packaged water.

Note: Information in this publication is intended to provide only a general outline of the subject covered. It should neither be regarded as comprehensive nor sufficient for making decision nor should be considered as a professional advice. S Lohia & Associates assume no responsibility for loss arising from any action taken or not taken by anyone using this publication.

There is a common practice in India to purchase/transfer the assets in the wife name e.g. purchasing of immovable property in the wife name, purchasing of shares/jewellery in the wife name etc.. There can be various reasons for the same e.g. prescribed rate of stamp duty is lesser in case of females etc. Though there can be other justified reasons to buy the assets in the wife name, however, another ulterior motive also remains i.e. Tax Avoidance.

To curb this kind of situation, which can lead to tax avoidance/reduction (by using exemption slab of income free hand of wife), provisions are inbuilt in the Tax Laws for the revenue safeguard. Hence, it is very important for one to know these provisions:

- As per Income Tax Act, if an asset or income is transferred to the spouse, without adequate consideration, then for the purpose of income tax computation that income or income from that asset shall be included in the hands of transferor spouse. Exception to this rule is if asset has been transferred in connection with an agreement to live apart.

- As per Income Tax Act, similarly, if some income has accrued to spouse from a concern in which the other spouse has a stake of 20% or more. Exception to this rule is if spouse is earning that income due to holding some technical/professional qualification.

- As per Wealth Tax Act, an asset transferred to spouse, without an adequate consideration, shall be included in the net wealth of transferor spouse for the purposes of wealth tax calculation.

Hence, in nutshell, point need to note is that even if an asset is purchased in the name of spouse (e.g. wife) to save stamp duty or some other legal purposes, however, for the purposes of tax computation income from that asset must be included in the hands of spouse whose funds were involved in buying of that asset. E.g. if an immovable property is purchased by husband either jointly with wife or solely in wife name (to save stamp duty) then for the purposes of computation of Income Tax or Wealth Tax the same should be included in the hands of husband. Similarly, if from husband funds some deposits are made by wife then interest income from such deposits should be added to husband income for tax calculation purposes.

Here another important point need to know is that savings made by wife out of pin money (in other words StriDhan) does not get included in the income of husband. Similarly, non-working wives can have their source of receipts from their parents/relatives etc. Considering this, it is very important that wife should accumulate their year-by-year receipts/income by keeping a record of receipts/income, filing ITR every year, keeping the funds in bank account etc.