Your queries – Income Tax: NRIs can claim benefits under tax treaties


By Chirag Nangia

I have been working in Zambia since 2000 and send my salary to my NRE account in India. Is it taxable in India? If it is taxable, then under which section should I show while filing the IT return?

It has been held in various judicial pronouncements that mere receipt of salary by NRI in his Indian NRE account for services rendered outside India is not taxable in India. Further, interest earned by NRIs on such NRE accounts is tax-free as well. NRIs earning income in the form of salary and interest, exceeding Rs 2,50,000 are required to furnish return of income in ITR-2 form. However, NRIs can claim benefits under tax treaties and claim refunds if TDS is deducted on their income. For this, you need to reconcile TDS credit and advance tax as reflected in Form 26AS.

I purchased a residential house in 1982 for Rs 55,000. I spent Rs 4 lakh in 1991 to remodel and construct the first floor. I sold the house for Rs 70,87,000 on November 27, 2021. How do I claim tax relief on long-term capital gains. I have paid Rs 70,870 as transaction tax. I have invested the money in a flat which is under construction.
—M Hanumantha Rao

For computing capital gain on sale of property, since you have purchased the property, the cost of acquisition shall be the higher of the actual cost or FMV as on April 1, 2001, which is indexed to account for inflation and any cost of improvement incurred prior to April 1, 2001 shall be ignored. Further, if net consideration arising on sale is invested for the purchase of a residential house property (one year before or within 2 years from date of transfer) or for construction of a residential dwelling (within 3 years from the date of transfer) then proportionate capital gains is exempt under section 54F. This exemption is allowed if an assessee does not own more than one residential house property on the date of transfer. The LTCG so calculated is taxable at 20%, plus a cess of 4%. Further, the tax paid by you is TDS as per Section 194 IA, which requires tax @ 1% to be deducted by the purchaser of the property at the time of making payment of sale consideration.

The writer is director, Nangia Andersen LLP.


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