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	NRI FAQs
	Capital gain Q. I had acquired a plot of land in April 1981 for a sum of Rs 2 lakh. The funds invested were borrowed at the rate of 9 per cent per annum. The amount was repaid in April 1985. The plot of land was sold recently in June 2006 for Rs 20 lakh. What will be amount of long-term capital gain for 2007-08? A. In accordance with the decision of Delhi High Court in CIT vs. Mithilesh Kumar (1973) 92 ITR 9 (Delhi), the cost of acquisition would include the expenditure incurred after the date of acquisition e.g. interest on funds borrowed for the payment of purchase consideration. The capital gain accordingly would be computed as under: Sale proceeds
	Rs 20,00,000 Less: indexed cost of acquisition Rs 2,00,000 x 519 divided by 100 = Rs 10,38,000 Interest for 1981-82 (31.3.1982) 18,000 x 519 divided by 100 = Rs 93,420 Interest for 1982-83 (31.3.1983) 18,000 x 519 divided by 109 = Rs 85,706 Interest for 1983-84 (31.3.1984) 18,000 x 519 divided by 116 = Rs 80,534 Interest for 1984-85 (31.3.1985) 18,000 x 519 divided by 125 = Rs 74,736 Total = Rs 13,72,396 Long-term capital gain = Rs 6,27,604
	Sale, purchase Q. I own 10 acres of agricultural land within Ludhiana. The land had been purchased in 1982 for Rs 15 lakh. I sold the said land in January 2005 for a sum of Rs 80 lakh and purchased 5 acres of agricultural land for Rs 50 lakh in a village near Karnal in May 2005. The agricultural land in the village near Karnal has been sold in October 2006 for Rs 55,00,000. How much would be my tax liability on capital gain from the sale of land in the village near Karnal. A. The capital gain earned on the sale of Ludhiana land was invested in accordance with the provisions of the Section 54B of the Act and capital gain would work out as under:
	Assessment Year 2005-06 Sale proceeds of agricultural land = Rs 80,00,000 Indexed cost of acquisition 15,00,000 x 497 divided by 109= Rs 68,39,450 Long-term capital gain = Rs 11,60,550 Exemption under Section 54B = Rs 11,60,550 Assessment Year 2007-08 Sale proceeds of agricultural land = Rs 55,00,000 Cost of acquisition = Rs 50,00,000 Less: Long-term capital gain exempted u/s 54B of the Act (Rs 11,60,550) = Rs 38,39,450 Short-term capital gain= Rs 16,60,550
	The above amount of short-term capital gain would be added to your total income and taxed at slab rate of 30 per cent plus surcharge @ 10 per cent and education cess @ 2 per cent. On this basis the tax on capital gain would work out at Rs 5,02,841. No more bonds Q. I sold a plot of land, which was held by me for more than three years. I was keen to invest the capital gain of about Rs 20 lakh earned on such sale in the capital gains tax saving bonds. I understand that subscription of such bonds has been stopped. Is there any other method of saving the capital gains tax? A. Your information that subscription of bonds issued by the National Highways Authority of India or Rural Electrification Corporation Limited had been stopped is correct. However, recently the government has opened another Rs 3,500 crore investment window for saving tax on long-term capital gains from sale of property. You should thus take immediate steps to deposit the amount of capital gain in the specified bonds. TAX TIPS Depreciation Q. I spent a large amount on the laying of my factory’s foundation stone and had invited one of the Celebrity to lay the same. Can such an amount be treated as part of the actual cost of the building? If so, will the amount so incurred considered for allowing depreciation by the department? A. The expenditure incurred on account of the foundation stone laying ceremony can be added to the cost of the factory building as foundation is a part of the construction of the building. Such expenditure should also form a part of the actual cost for the purpose of depreciation. The issue is covered by a Bombay High Court decision in the case of CIT vs. Nirlon Synthetic Fibres and Chemicals Ltd. (137 ITR 1) (Bombay). Legal heir Q. My father owned a residential house property in Jalandhar and all of us were residing there since last about 30 years. The house was sold in April 2006 as it was essential for us to move to Chandigarh on account of some family reasons. We purchased a residential house in Chandigarh to save the capital gain but before the sale deed could be registered in favour of my father in December, 2006, he died in October. The sale deed has been registered in my name being sole surviving legal heir. Can I get the benefit of the Section 54 of the Act? A. There is no dispute that there was a transfer of the house property and the income of Jalandhar property must have been shown as “Income from house property” in his return by your father. Further as legal heir, you will have to pay tax on the income of the deceased for assessment year 2007-08. Since you are liable for the tax liability for the said assessment year 2007-08, you should be able to avail the benefit under the Section 54 of the Act. In this connection you may also refer to a decision of the Madras High Court in the case of C.V. Ramanathan vs. CIT (1980) 4 Taxman 432, which supports the view given herein above.
	What is the meaning of a property's market value? How is its stamp duty decided? The valuation process evaluates the market value of the property. Demand and supply forces operating in the market, as well as other factors like type of property, quality of construction, its location, the local infrastructure available, maintenance, are all taken into consideration before the market value is decided.
What does the term 'Freehold Property' mean?
	An agreement of sale, coupled with actual possession of the property would be considered as a conclusion of the sale. Usually, the entire amount is paid at the time of handing over possession.
1.	Do NRI's require permission of Reserve Bank to transfer immovable property in India? No. NRI's do not require any permission to acquire any immovable property in India other than agricultural / plantation property or a farm house.
2.	Do NRI's require permission of Reserve Bank to acquire immovable property in India? No. NRI's do not require any permission to transfer any immovable property in India. Permission is required only in the case of transfering of agricultural or plantation property or farm house to another citizen of India NRI or PIO.
3.	In what manner the purchase consideration for the immovable property should be paid by PIO's under the general permission? Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property other than agricultural land/farm house/plantation property, in India. They are, therefore, not required to obtain separate permission of Reserve Bank or file any declaration.
4.	Can such property be sold without the permission of Reserve Bank? Yes. Reserve Bank has granted general permission for sale of such property. However, where another foreign citizen of Indian origin purchases the property, funds towards the purchase consideration should either be remitted to India or paid out of balances in non-resident accounts maintained with banks in India.
5.	Can sale proceeds of such property if and when sold be remitted out of India? In the event of sale of immovable property other than agricultural land/farm house/plantation property in India by a NRI or PIO, the authorized dealer may allow repatriation of the sale proceeds outside India, provided all the following conditions are satisfied: -
6.	Do PIO's require permission of Reserve Bank to purchase immovable property in India for their residential use? The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from any non resident accounts maintained with banks in India.
	The immovable property was acquired by the seller in accordance with the provisions of the Exchange Control Rules/Regulations/Law in force at the time of acquisition, or the provisions of the Regulations framed under the Foreign Exchange Management Act, 1999; The amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in foreign currency non-resident account or (b) the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held in non-resident external account for acquisition of the property; and In case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
7.	What other facilities are available for repatriation? Authorised dealers can allow remittance up to USD 1 million for any purpose, per calendar year from balances in NRO accounts subject to payment of applicable taxes. The limit of USD 1 million per year includes sale proceeds of immovable properties acquired by the NRI/PIO's while they were resident in India and held for a period of 10 years and above. In case the property is sold after being held for less than 10 years, remittance can be made if the sale proceeds were held for the balance period in NRO account or in any other eligible instruments.
8.	Can PIO's acquire or dispose of immovable property by way of gift? Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of immovable properties other than agricultural land/farmhouse/plantation property by way of gift from or to an Indian citizen, NRI or PIO.
9.	Can NRI's/PIO's rent out the properties (residential/commercial) if not required for immediate use? Yes. Reserve Bank has granted general permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income is eligible for repatriation
10.	Can NRIs obtain loans for acquisition of a house/flat for residential purpose from financial institutions providing housing finance? Reserve Bank has granted general permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd., etc., to grant housing loans to NRI's for acquisition of a house/flat for self occupation subject to certain conditions. The purpose of loan margin money and the quantum of loan will be at par with those applicable to housing loans to residents. Repayment of loan should be made within a period not exceeding 15 years out of inward remittances or out of funds held in the investor's NRE / FCNR / NRO Accounts.
11.	Can authorised dealer grant loans to NRIs for acquisition of a flat/house for residential purposes? Authorised dealers have been granted permission to grant loans to NRI's for acquisition of house/flat for self-occupation on their return to India subject to certain conditions Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or out of funds held in the investors' NRE/FCNR/NRO accounts.
12.	Can authorized dealer grant housing loan to NRI's where he is a principal borrower with his resident close relative as a co-applicant / guarantor or where the land is owned jointly by such NRI borrower with his resident close relative? Yes. Such housing loans availed in rupees can also be repaid by the close relatives in India of the borrower
13.	What are the guidelines for acquisition of agricultural land / plantation property / farmhouse by NRIs and foreign citizens of Indian origin? All requests for acquisition of agricultural land / plantation property / farm house by any person resident outside India may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400 001.
MISCELLANEOUS
What are the charges to be paid while gifting property?
A lease agreement can be reached in either of two ways, depending upon each case:
In cases where the lease contract is from year-to-year / exceeding one year's rent / reserving yearly rent, then a registered instrument can be created, which both the lessor and the lessee must execute. In cases other than the above, an oral agreement followed by delivery of possession is considered enough.
How is a lease agreement created?
A When a gift of property is made, a gift deed needs to be made by a lawyer. Stamp duty on the market value of the property also needs to be paid, as well as the necessary registration charges.

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