NRI problems: Bonds sold before their maturity will be taxable

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NRI problems: Bonds sold before their maturity will be taxable

Published: Mon 28 Sep 2015, 12:00 AM

Last updated: Tue 29 Sep 2015, 8:52 AM

Q: The gold bonds scheme has now been announced by the government. My mother who is in India would like to take advantage of the same. Would NRIs also be eligible for the scheme? Details of the scheme may be furnished.
- P R Gopalkrishna, Dubai
A: The Gold Monetization Scheme guidelines have been announced, under which gold can be deposited against issue of gold bonds in denominations of 5 gms., 10 gms., 50 gms. and 100 gms. The maximum gold which can be surrendered in exchange of the bonds is 500 gms. The bonds will be traded on stock exchanges which would give flexibility to investors to sell the bonds. If the bonds are sold before their maturity date, capital gains will be taxable, but the benefit of indexing the cost of the bonds which have been held for atleast three years would be available.
On the other hand, if the bonds are held till maturity, the capital gains will be fully exempt from tax. The minimum tenure of the bond has not yet been decided, but it is expected that it would be for a minimum of five years. These bonds can be utilized as collateral for taking loans from banks and financial institutions. The bonds can be subscribed to only by resident Indians, and, therefore, your mother can subscribe to these bonds.
Q: We regularly export goods to Indian businessmen. Can the Indian importer secure trade credit in rupees from overseas lenders? Is this permissible?
- T K Mehta, Sharjah
A: In a recent announcement made by the Reserve Bank, Indian importers will now be eligible to secure trade credit in rupees by entering into a loan agreement with overseas lenders. Such overseas lenders of rupee denominated trade credits will be eligible to hedge their exposure in rupees through permitted derivative products with a bank in India. Necessary guidelines for hedging are yet to be issued.
The trade credit arrangement formulated by the Reserve Bank permits credit in rupees for import of all items permissible under the foreign trade policy, except gold. The trade credit period for import of non-capital goods would be upto one year from the date of shipment or upto the operating cycle, whichever is lower. The trade credit period is five years from the date of shipment of capital goods.
Q: I have sold a residential property. The capital gains have been deposited in a special capital gains bank account. Thereafter, within two years, I have booked a flat and gave an advance towards the purchase price from the amount lying in such deposit. The tax officer has not allowed the exemption under section 54 on the ground that the new property was not purchased within two years. Is this correct?
- B R Chary, Doha
A: Section 54(2) of the Income-tax Act requires that the amount deposited under the Capital Gains Accounts Scheme should be utilized for purchase of the new residential property. If this is not done within two years, the capital gains tax exemption would not be available. Recently, the Supreme Court has held that advances paid for purchase of an asset would amount to utilization of the capital gains made by an assessee. Hence, the condition laid down in the section would be fulfilled. Therefore, you should appeal against the assessment order under which you have been denied the exemption.
The writer is a practising lawyer, specialising in tax and exchange management laws of India.

By H.P. Ranina

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