NRI Problems

Answered by Money times adviser : Mr.H.P.Ranina

( If you have any questions related to NRI problems please write to Money Times, P.O.Box-11243, Dubai, UAE)

Question: I am holding some shares of a software firm pur­chased by paying Rs45,000 in foreign exchange. Please advise, if I sell these shares, whether the entire proceeds of the sale can be credited to my NRE account or is it only the initial investment of Rs45,000 which can be converted to foreign exchange? If the amount is repatriable, what happens when the individual or purchasing company is not in a position to pay in foreign exchange?

Answer: What can be credited to the Non-Resident (External) (NRE) account is the net sale proceeds after paying the capital gains tax. If the shares have been held for more than one year, the rate of tax would be 10 per cent on the capital gains. If the shares have been held for less than one year, the short-term capital gains tax would be at the normal rates applicable to resident individuals. Your Chartered Accountant would issue a certificate to the bank that the appropriate amount has been paid by way of tax and, on receiving this certificate, the balance amount of sale proceeds would be credited by your bank to your NRE account.

Please understand that the foreign exchange is to be provided by the bank and not by any individual or the purchasing company. In other words, since you had originally invested in foreign exchange, the net sale proceeds after tax can be repatriated in foreign exchange.

Question: I had purchased a flat (in Pune) in the year 1988 in my single name out of my NRE Account.

I inherited 50 per cent share in a flat in Bombay from my mother in June 1992 along with my brother (50 per cent) who continued to live in the same flat. In August 1998, 1 purchased his share of 50 per cent by a sale deed for a consideration and since then he vacated the flat. The society registered the flat in my name in January 1999.

Since I own two flats (both vacant) do I attract wealth tax liabilily? If yes, I wish to sell the flat in Pune to my wife who will pay me the money by selling the shares jointly held by us (her name being first). Please advise the steps to be taken to minimize the tax liability.

Answer: One residential property is exempt from wealth tax. If you sell your flat in Pune to your wife, the capital gains made by you would be taxable. However, if you invest the capital gains in bonds issued under Section 54-EC of the Income-tax Act within six months from the date of sale of the Pune property, you will save the capital gains tax. The bonds will have to be retained by you for a period of five years.

Question: I have been a non­resident Indian for the past 20 years. My wife and children are also non resident Indians. We hold FCNR, NRE, and NRNR bank accounts in India. My FCNR dollar deposit will be maturing in November 2001. 1 have some NRE deposits in Indian rupee in joint names of my minor children, maturing on 2002, 2003, etc. We are planning to go down to India during end of April 2001. If I want to convert my FCNR dollar account to Resident Foreign Currency (RFC) account, when should I do that? Can I wait till the maturity, that is November 2001? Will there be any tax on the RFC account? Can I break and convert these NRE accounts into RFC accounts?  

Answer: I assume that you are re­turning to India for good by the end of April 2001. In that case, you would be free to convert your FCNR/NRE deposits into RFC account. There is no penal interest charged for such conversion. However, your NRNR funds can not be placed in RFC deposits because such funds are non­repatriable. The interest on the RFC account will be tax-free for nine years beginning with the financial year 2001-02 because you will enjoy the status of being resident but not ordinarily resident.

 ( Courtsy: Khaleej Times )     More NRI Resources