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NRI PROBLEMS

A Canadian company for which I am working in the Gulf is planning to set up joint venture companies with Indian industrialists. One of the group firms may also be a limited liability partnership. They will be deputing Canadian citizens to the Indian group companies or entities. Will such employees be eligible to repatriate in foreign exchange the salaries which they earn from the Indian entities?

— P.S, Ahuja, Dubai

Employees deputed by foreign companies to their Indian subsidiaries have been permitted to retain their salaries in foreign currency accounts in India and repatriate the amount after paying the Indian taxes. It has now been decided to liberalise this regulation and permit employees of foreign companies who are on deputation with Indian group companies to repatriate their net salary from India through their foreign currency accounts in India. This would also be possible for employees of limited liability partnerships in which the foreign company is a partner.

As the employees would be rendering services in India, they would be liable to tax on their full salary in India. Therefore, even if part of the salary is paid outside India, the aggregate amount would be deemed to accrue and arise in India and would be subjected to Indian tax laws.

 What specific steps has the Indian government taken to expedite implementation of projects, which have been stalled due to bottlenecks?

— K.T. Joseph, Doha

Several projects have been delayed, which were approved as far back as in 2006-07. There are currently about 370 projects which are stalled at various levels. The government has set up a project monitoring group in the prime minister’s office. The cause of the delays in implementation includes difficulties in fuel linkages, environmental clearances, etc.

The government is now considering extending the validity of environmental clearances from five years to seven years. This would ensure that fresh approval from the environment ministry would not be required if the project is commenced within seven years.

The Reserve Bank of India (RBI) has permitted banks to extend the repayment schedule of loans. Banks are also permitted to rewrite the terms of the loan to make them more favourable for promoters. The RBI has also permitted banks to transfer their loans to another bank or financial institution after five years. These moves will help large infrastructure projects.

 I want to acquire selling rights in a property, which is currently owned by my friend and on which he will construct a building. To acquire these rights, I will pay him a lump sum amount, which will enable him to finance the construction cost. Thereafter, when I sell the apartments pursuant to my marketing rights, will I be taxed at the rate of 20 per cent on the capital gains?

— G.K. Ratnakar, Manama

At present, you are paying a lump sum amount for acquiring the selling rights in respect of apartments which are yet to be constructed. Your intention is to sell the apartments immediately upon obtaining occupation certificates on completion of construction. The profit, which you will make on such sale will be treated as business profit. Such sale transaction would be construed as an adventure in the nature of trade.

Hence, the profits cannot be treated as capital gains, which attract a lower rate of tax of 20 per cent in respect of capital assets, which are held for atleast three years. The profits which you will make on sale of apartments as soon as the construction is completed will be taxed as business profits at the normal rates of income-tax, 30 per cent being the rate on income over Rs1 million. However, if after the apartments are completed, you retain them for atleast three years and thereafter sell them, the profits would be treated as capital gains and would be taxed at the rate of 20 per cent.

 The writer is a practising lawyer specialising in tax and exchange management laws of India.

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