I am an OCI card holder with Canadian citizenship and doing business in Canada and India. My question is whether I have to pay taxes for my Canadian income in India?

— Joseph

Taxability of income in India depends upon your tax residential status during the Financial Year (FY). Residential status is in turn determined by the physical presence of the individual in India during the FY and immediately preceding seven FYs. It is important to determine your residential status in India on year-on-year basis to ascertain the taxability of income in India. Just for understanding, there are three categories of residential status in India:

Non Resident (NR);

Not Ordinarily Resident (NOR); and

Ordinarily Resident (OR).

Depending upon your stay in India, in case you qualify as either NR or NOR during the FY, you shall be taxable in India only on India sourced income i.e. any income from your business in India. Accordingly, income which you have earned and directly received outside India (i.e. Canada) would not be taxable in India.

However, if you qualify as OR in India in any of the FY, your global income should be taxable in India irrespective of source or place of receipt of such income. The benefits under the Double Tax Avoidance Agreement have to be examined separately.

Therefore, in your case, determining your residential status in India in each of the FY and understanding the actual operations in India would be crucial to ascertain taxability of your income in India.

I have closed my PPF A/c on maturity. After that till now, I was contributing to the PPF A/c of my minor daughter. However, my daughter is an adult now. But she is a student and does not earn any income. Kindly inform whether I can still contribute to the PPF A/c of my daughter and still get the benefit under Section 80C, till she completes her studies and gets a job?

— V Srinivasan

An individual is eligible to claim deduction from total taxable income in respect of contributions to PPF, up to the overall limit of Rs 1,00,000 under Section 80C of the Act. The deduction could be claimed in respect of contributions made in his own PPF account or in the account of spouse or any child. Accordingly, you should be eligible to claim deduction in respect of contributions made by you in your daughter's PPF account.

A flat was bought in Oct 2006 for Rs 25, 00,000 for lump sum payment. Got possession in May 2009 and registration was done in Oct 2009. There is a buyer for for Rs 45, 00,000 now. The current registration value for such type of flat is now Rs 35, 00,000. How to calculate the capital gain? Is it on the registered value or on the actual sale value? If capital gain has to be calculated on the registered value how to pay tax for the remaining 10 lakh? Since lump sum amount is paid in 2006, can that year be taken for an indexation? Please clarify this through your column.

— Rani

The gains arising from sale of flat shall be taxable in your hands as capital gains. Further, the capital gain has to be classified into Long Term Capital Gain (LTCG) or Short Term Capital Gain (STCG) depending upon the period of holding of the property from date of acquisition (i.e. date of transfer of title in the property) to the sale date. Though you had paid lump sum amount in October 2006, it is imperative to determine when the title to the flat has been transferred to you. The year when you have acquired the title would be considered as the year of purchase acquisition. In case, you hold the flat for more than 36 months from the date of acquisition, the resultant gains shall be termed as LTCG. If the flat is held for less than 36 months from the date of acquisition, the resultant gains shall be termed as STCG.

The Capital gains shall be computed as difference between the ‘net full value of consideration' and the ‘cost of acquisition including cost of improvement'. The net full value of consideration would be the consideration you would receive towards sale of flat as reduced by transfer charges incurred in connection with the sale such as commission/brokerage, etc. In your case, if the full value of consideration you receive is Rs 45,00,000, then Rs 45,00,000 will be the sales consideration. The cost of acquisition shall be the actual cost of the flat (i.e. Rs 25,00,000) as increased by cost of improvement made subsequently, if any.

Further, for computing the LTCG, the cost of acquisition and cost of improvement should be appropriately indexed based on the cost inflation index published by the Income tax Department. The LTCG is taxable at the rate of 20.6 per cent (including education cess). The STCG is taxable according to the normal slab rate applicable to the individual.

You could claim exemption on LTCG by re-investing in new residential house or in specified Bonds within the prescribed time limit and subject to conditions under the Act.

(The author is Executive Director, Tax, KPMG.)

Mail your queries to taxtalk@thehindu.co.in

Related Topics
comment COMMENT NOW