Financial Daily from THE HINDU group of publications
Sunday, Feb 08, 2004
Financial Daily from THE HINDU group of publications Sunday, Feb 08, 2004 |
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Investment World
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Income Tax Columns - Tax Talk Back home, but nest eggs are abroad T. Banusekar
I am now a resident and ordinarily resident in accordance with Section 6 of the Income-Tax Act. Will the interest on those deposits, which are in banks outside India, be taxable in India? What will be the view if such interest is not chargeable to tax in the foreign country? Sunny Reply The interest income will be chargeable to tax. Section 5, which defines the scope of total income, makes it clear that the entire world income will be taxable in India if the person is a resident and ordinarily resident. The position regarding its taxability may not vary based on whether it is taxable or not taxable in that foreign country. However, if there is a double taxation avoidance agreement (DTAA) between India and that foreign country and under this DTAA the income is chargeable only in that foreign country and not in India it may be possible that the income may not be chargeable in India. Relief may also be available on the basis of the DTAA. This will have to be examined on a case-by-case basis based on the country of source and whether India has a DTAA with that country. Query Are the following incomes eligible for exemption?
Ramesh Babu Reply Neither of the incomes will qualify for exemption. Both of these will be chargeable to tax. The rental income from the house will normally be charged as income under the head `income from house property' while income from letting of the marriage hall will fall under `profits and gains of business or profession'. You can claim the deductions that are permissible in computing the income under these heads. Query Non-residents after staying abroad and returning to India with no intention of leaving India are permitted to keep their savings in foreign currency deposits with banks, which are called Resident Foreign Currency (RFC) accounts. I understand that the interest from these accounts are not chargeable to income-tax. Is this a correct view? S. Rajesh Reply Interest from RFC accounts will be exempt from tax in the hands of a non-resident or a `resident but not ordinarily resident' (RNOR). Section 10(15)(iv)(fa) of the Act provides for an exemption to a non-resident or a RNOR on interest from deposits in foreign currency with a scheduled bank if the acceptance of such deposits by the bank is approved by the RBI. Query RFC accounts are essentially accounts which are maintained in a foreign currency. Can the loss on account of the appreciation in the Indian rupee be set off against the interest income earned from the RFC account after the assessee becomes a resident and ordinarily resident (ROR)? V. Ravi Narayanan Reply It appears that the set off of the loss on account of appreciation of the Indian rupee against the interest income would not be possible. You are right in pointing out that the interest income from an RFC account would be taxable in the hands of a person who is an ROR in India. Such interest income would be taxable as income under the head `income from other sources. What can be claimed as a deduction under this head is, among others, a deduction in respect of expenditure incurred wholly and exclusively for the purpose of making or earning such income. This is provided for in Section 57(iii) of the Act. It may not be possible to classify a reduction in the capital on account of exchange fluctuation of a foreign currency as an expenditure of the nature referred to in Section 57(iii) so as to claim it as a deduction against the interest income. You will also appreciate that the appreciation as a result of foreign exchange fluctuation was not brought to tax when such was the position earlier. Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.
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