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My son is an NRI. He has an Non-Resident Ordinary Account (NRO A/c) and uses a part of the account money to meet his travel and shopping expenses when he comes to India. The balance funds are used by me and my wife as follows:
a. I am a mandate holder in his NRO A/c and I have an ATM/debit card linked to the account. I use around ₹4 lakh per year as cash withdrawals and for payments using the debit card to meet our living, travel, medical expenses, etc.
b. He transfers around ₹2 lakh per year to my wife’s bank account, which she uses to meet our living, travel and medical expenses, etc.
My son and I file our income tax returns; my wife does not, as her income is below the taxable limit. How will the amounts received from our son be treated by I-T authorities? Will they be treated as ‘gifts from relatives’ which is exempt and not included under the definition of income and hence need not be reported in ITR? Or should we declare the money received from my son in our I-T returns as Exempt Income - Others? What should my wife do as she is not obligated to file I-T returns?
A Venkat
As per Section 56(2)(x) of the I-T Act, any amount exceeding ₹50,000 received without consideration by an individual will be regarded as income and taxable under the head ‘Income from other sources’, subject to certain exceptions.
One of the exceptions is gifts received from relatives. As ‘son/daughter’ is covered under the definition of relative, the amount received from your son for the purpose of maintaining your living in India will not be regarded as income chargeable to tax in your/spouse’s hands. However, any income earned from such gift will be taxable. For instance, if you invest such money in fixed deposits, the interest earned from such deposits will be taxable in your hands.
You are required to report such gift received as exempt income while filing your I-T returns for disclosure purpose.
With respect to your spouse, as her taxable income is below the threshold limit of income chargeable to tax, she does not have a tax-filing requirement and the question of reporting the gift received from your son should not arise.
I currently withdraw ₹1,000 per month through an SWP (systematic withdrawal plan) from an equity fund after a period of one year. How is long-term capital gains (or losses as the case may be) calculated in such cases?
A R Ramanarayanan
Each monthly equity fund withdrawal through an SWP is considered ‘Transfer of a Capital Asset’, and the capital gains/ loss need to be computed for every transaction. Based on the period of holding, it will be further classified as short- or long-term capital gains (LTCG).
Based on the details provided, withdrawal made from an equity fund after a period of one year will be regarded as LTCG. With effect from FY2018-19, LTCG exceeding ₹1 lakh arising on transfer of listed equity shares and equity-oriented funds shall be taxable at the rate of 10 per cent (exclusive of surcharge and cess).
The cost price and the period of holding for the purpose of the capital gains will be calculated on the first-in, first-out method, i.e., units purchased first are redeemed first.
The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in
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