The Hindu Business Line : Tax on NRI interest income

I am a housewife. My husband is a non-resident Indian and has been sending me money regularly. I have been investing the money in nationalised banks in fixed deposits. Is the interest income chargeable in my hands? Should I apply for a Permanent Account Number? — Arundathi

The income by way of interest from the fixed deposits with banks will not be taxable in your hands but will be taxable only in the hands of your husband. Even if deposits are in your name, the income by way of interest will be chargeable only in the hands of your husband. Your husband may, therefore, have to obtain a Permanent Account Number and also furnish a return of income.

I am an employee of Steel Authority of India Ltd. I am pursuing my MBA through correspondence. Will the fee that I pay to the university for the course be eligible for any tax benefits? — Sanju

No tax benefits are available in respect of the fees paid by you. Section 80C, which allows a deduction in respect of fees paid, only allows a deduction when it is paid for the education of up to two children of an individual.

I have been out of India from January 2008. Is the income that I have earned during the months of January to March 2008 taxable in India? I am transferring some funds to my friend on a regular basis as a financial help to him. Will this amount be taxable as his income in India?

I am also transferring some funds to my savings bank account in India. Will this be taxable in India? What will be the tax implications if I transfer some funds to my married sister? — Devendra Burade

For the financial year 2007-08, it appears that you have been in India for the period prior to January 2008, which means that you have been in India for more than 182 days in that previous year. You would, therefore, be a resident in India under the provisions of the act.

As you have also not indicated about any previous travel abroad, it appears that you will be a resident and an ordinarily resident under the Income Tax Act. This being so, the income earned by you during the period from January to March 2008 would be taxable in India.

You may, however, examine the possibility of getting the benefit of the Double Taxation Avoidance Agreement if the income earned by you abroad is taxable in that country also. If there is no Double Taxation Avoidance Agreement between India and that other country, you may examine the possibility of getting the benefit under section 91 of the act.

You have not indicated on what basis you are transferring the funds to your friend. If it is being transferred as a loan there will be no tax implications in his hands. If, however, the sums are transferred as a gift to your friend, the same may be taxable in India.

In this connection, you may note that section 56 provides that any sum received without consideration, if it exceeds Rs 50,000 an annum, would be treated as income in the hands of the recipient. This section, however, excludes a sum received from a relative as defined in the section as not constituting income.

As there would be no exclusion where the sum is received by your friend from you without consideration, it would become the deemed income of your friend under section 56 to the extent it exceeds Rs 50,000 in a financial year. On the other hand, when sums are transferred by you to your married sister, there would be no tax implications in her hands even if the same is transferred without consideration to her as the sum received by a relative will not be treated as income in their hands.

One of the relatives defined in the section includes the sister of an individual.

I am employed by a company in the oil sector and draw a salary of around Rs 6 lakh an annum. I have some shares of the same company I work for and have been holding them for over 6 years. I now propose to sell the shares and use the proceeds to purchase a house. Will I be liable for tax on the sale of shares? — Anita Kumari

As you have held the shares for a period exceeding one year, the gain would be a long-term capital gain. Long-term capital gains will be exempt from tax if the shares are sold through a recognized stock exchange where Securities Transaction Tax is payable at the time of sale.

If, however, the shares are not listed or are not sold through a recognized stock exchange even where listed, the long-term capital gains will be chargeable to tax as provided for in section 112 of the act.

You will have to examine this aspect to determine the taxability of the capital gains. Even where the capital gain is chargeable to tax you may be entitled to an exemption under section 54F on the gain arising from the sale of shares as you have used the proceeds to purchase a house.

The exemption is available under section 54F in such circumstances provided the following conditions are fulfilled: the assessee is an individual or HUF, the gain arises from the transfer of a long-term capital asset not being a residential house, the assessee does not within a period of 2 years purchase or 3 years construct any residential house other than the new house, the assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.

The quantum exempt will be on the following basis

If the amount invested is more than or equal to the net consideration then the entire capital gain

If the amount invested is less than the net consideration then the amount invested multiplied by the capital gain and divided by the net consideration

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)