I am a non-resident Indian (NRI) and I sold my flat in India in January 2018. I had invested ₹50 lakh in NHAI bonds under Section 54EC, maturing in January 2021. Will I get the tax benefit, and am I allowed to invest the maturity amount in government bonds to get regular income, as I will likely retire in the next few months and settle back in India. Also, will this investment be held as a resident or as an NRI?
—Name withheld on request
Under Section 54EC, the long-term capital gains (LTCG) on the sale of a land or building or both can be claimed as exempt from tax in India to the extent the capital gains are invested in specified bonds (such as NHAI and REC), subject to a maximum limit of ₹50 lakh.
In case the specified bonds are transferred within a period of three years from the date of acquisition, the exemption claimed earlier will be taxable in the year in which the specified bonds are transferred. The lock-in period of three years was extended to five years in case of bonds issued on or after 1 April 2018.
In your case, the gains were invested in NHAI bonds in January 2018. As the bonds were issued before 1 April 2018, the lock-in period is three years. Thus, tax exemption for the gains from the sale of the flat will continue if you hold the bonds till maturity in January 2021. You may invest the maturity amount in eligible government bonds, depending upon your residential status in India at the time of investment. NRIs are not eligible to invest in certain specified government bonds.
Interest income earned on investments will be taxable on a cash or mercantile basis, depending on the method of accounting followed by you.
I want to gift our ancestral property to my son, who lives in Australia. Will there be any tax on the gift?
—Name withheld on request
Tax is levied on receipt of any sum of money, moveable property (specified property such as shares, jewellery, work of art and bullion) or immoveable property valued in excess of ₹50,000 by an individual without consideration (without a quid pro quo) or for inadequate consideration, except gifts received from a relative or on marriage or by way of inheritance or other specified exclusions. Therefore, the gift of immovable property to your son will have no tax implications in India, for either of you. However, any rental income or income on subsequent sale of the property will be taxable in India in the hands of your son.
Check the taxability of receipt of a gift in Australia as per the tax laws there.
Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at [email protected]