Your Taxes

From January 2016, I have been receiving ₹14,000 on average (as a gift every month) from my mother to pay my credit card dues. And I have invested ₹3.27 lakh in shares by redeeming my past investments and gift from my brother. What will be the tax implications for the amount received as gift from my mother and brother? Do I have to pay tax if my investment in shares exceeds ₹2.5 lakh in FY 2016-17?

M K Nathan

We understand that you receive a fixed amount each month from your mother for your credit card dues. Assuming the same is treated as a gift under the Indian tax laws, you will not have any tax incidence as gifts from specified relatives are not taxable, irrespective of the purpose or occasion. Both mother and brother are covered within the definition of relative; hence, gifts received from them will be exempt.

Further, you will not have any liability at the time of investment in shares, irrespective of the amount invested. Dividends on such shares are also tax exempt though they have to be reported in the return of income. You could have a capital gains tax exposure (at 15 per cent) if you sell the shares within 12 months from the date of acquisition. If your period of holding exceeds 12 months, the gains will be long term in nature, which are also exempt from tax. We have assumed that the purchase/sale transactions will be subject to Securities Transaction Tax.

I received an email from the tax department to file undisclosed income as my investments commencing April 2016 in MFs have been ₹3.20 lakh per month. However, my investments are from my salary earnings remitted to my NRI account in India, transferred to my NRO account and then invested in respective MFs. My tax status is NRI. Am I required to take any action?

Chandra

According to Section 9(1)(ii) of the Income Tax Act, 1961, salary is taxable in India only when it is earned here. Further, salary is deemed to be earned in India if the services are rendered in India. From the facts provided, we assume that you qualify as a non-resident for the purposes of Indian taxation. Further, you are working overseas and remitting a portion of your salary earned and received in that country to your NRI account in India. Accordingly, the remittance will be in the nature of application of income that is primarily not taxable in India as the salary income is earned and received outside India. Accordingly, you will not have a tax return filing requirement till the time your taxable earnings in India exceed the threshold limit or your residential status undergoes a change.

You could respond to the notice by clearly detailing the facts that you would qualify as a non-resident for tax year 2016-17 and that investment in mutual funds are from your salary income earned outside India that are not taxable in India. You could mention that based on this, there is no failure on your part to disclose income in India.

The writer is Partner, Deloitte, Haskins and Sells, LLP. Send your queries to taxtalk@thehindu.co.in

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