Resident Indians should mention foreign income in tax returns

Dubai - As a NRI, you are not liable to pay tax on any income which is earned outside India

Q: Having taxable income in India from the rent which I earn, I will be filing my tax return by July 31. I was informed by my tax practitioner in India that I would have to furnish details of my bank accounts outside India. Is this information correct? Will I also have to pay tax on the interest earned on deposits in my overseas bank accounts?
- L K Almeida, Dubai
A: Only resident Indians having foreign bank accounts had to disclose particulars of the same in their tax returns. However, from the current financial year 2017-18, if a non-resident Indian or expatriate has taxable income in India, while filing the tax return, he would be required to give details of his bank account outside India, provided he is entitled to a refund of tax so that such refund can be remitted directly into his overseas bank account. The details should include name and address of the bank as well as the Swift code and the international bank account number. If you are not entitled to a refund, details of your foreign bank accounts are not required to be disclosed.
As a non-resident Indian, you are not liable to pay tax on any income which is earned outside India. Therefore, your foreign interest income or income from any other source is not taxable in India. Hence, you will not be required to disclose such foreign income when you file the tax return. This return will only give details of income, which is earned in India, whether it is from rent, interest, capital gains on sale of Indian assets or from any other source.
Q: My son has set up a medium scale industry in Telangana. The government has given subsidy which is in the form of exemption from payment of sales tax collected from customers. For the past financial year, my son had collected the sales tax but not paid it to the government under the scheme. Would this amount be exempt from income tax on the ground that it is a capital receipt?
- G D Rama Rao, Sharjah
A: Courts have held that if the subsidy is given which is linked with capital expenditure incurred by the entrepreneur, such amount would be a capital receipt which would not be liable to tax. On the other hand, if the subsidy given by the State Government is unconditional, and the amount can be used for any purpose, tax would be payable on the amount of subsidy received. In fact, the law has been amended by the Finance Act, 2015 to specifically provide that assistance received from the Government in the form of subsidy is taxable as income.
This amendment is in conformity with court decisions in which it was held that by allowing the tax payer to collect sales tax without the corresponding obligation of paying it to the government, the State was permitting augmentation of the tax payer's income. Therefore, such subsidy should be treated as a revenue receipt and no exemption would be available in respect of the same.
Q: My wife sold a plot of land which she had inherited from her uncle. She has made capital gains. However, she does not wish to invest in a property as she already has a residential house. Is it possible to claim exemption in respect of the capital gains made on sale of the land?
- S P Nanavati, Oman
A: Capital gains to the extent of 5 million rupees would be exempt from tax. This is subject to the condition that the capital gains should be invested in certain notified bonds. Such investment should be made within six months from the date of sale of the long term capital asset.
The notified bonds under section 54-EC of the Income-tax Act are those issued by the National Highways Authority of India or by the Rural Electrification Corporation. Another company, which is permitted to issue such bonds is the Power Finance Corporation Ltd. The bonds cannot be redeemed for three years and no loan can be taken on the security of these bonds. Though the capital gains invested in the bonds are exempt from tax, the interest earned on these bonds would be taxable as income from other sources.
 The writer is a practising lawyer specialising in tax and exchange management laws of India.
 

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