Legal & income Tax


Follow-up query
You can start filing the return of income from now since you have made capital gains this year. There is no offence in the earlier years since there was no income in those years to necessitate filing of returns. You can purchase two housing properties and avail the exemption under section 54 of the Act. Since you are a non resident you will have to file your return of income in the designated NRI circle in the metro cities for which a separate PAN no is necessary.
Local property and municipal taxes on the property is question is payable as per the local laws. If the property is let out the income arising out is it is liable to income tax.
You are right. Interest free loan is treated as a perquisite in your hands for the years in question. Unfortunately there is no provision for recouping the taxes paid on account of the loan being terminated for any reason. May be if the assessment is not complete then the returns could be revised subject to time limit withdrawing the income offered on this account.
Legitimate inward remittance has to be received through normal banking channel. The Foreign Inward Remittance Certificate (FIRC) shall be obtained from bankers, stating clearly the purpose of inward remittance. The inward remittance stated as "compensation" has to be properly accounted for income tax in India.

A person of Indian origin who subsequently obtained American Citizenship and stayed in USA for 15 years has returned to India recently and has constructed a house property in India only for his residence. His majority of the assets are located in USA, from which he earns interest, dividends.

As per the amended provisions of Section 6 (6) of the I.T.ACT, 1961, he is Resident and Ordinarily Resident.

But, to bring his income earned in USA to taxation in India, he should be a resident in terms of the DTAA entered into between USA and India in terms of Section 90 of the Income-tax Act, 1961.

As per the said Agreement if he is considered as Resident of USA, then such income earned in USA is taxable only in USA as per its domestic tax laws and not in India.

In our view, since he is an American Citizen having substantial investment in USA, (he is not gainfully employed in India), the centre of vital interest is in USA., he should be deemed to be a Resident of USA and in which case, the income accruing to him by way of interest and dividends in USA is not taxable in India.

Please clarify.
If there is dual-resident issue the DTAA has tie-breaker rules to fix the resident status based on criteria like CVI, as stated by you. If According to DTAA between US and India the residential status is fixed as US, and the DTAA gives right only to the state of residence to tax, then no tax can arise in India despite being resident under Indian law. This determination should be made for each type of income. Many books are available on DTAA and you can pick up by visiting Bookstores like landmark that have online facility.
No tax arises in India on the assumption that you are in Singapore and rendering the services there, though the arrangement looks unusual.
The capital gains will be long-term in nature and worked out on the basis of the cost incurred by your father, which will be indexed for inflation at indices given by govt. There is no system of tax clearance certificate for sale of properties anymore. However, you will need some professional assistance to complete the process and file tax returns.
The transaction may give rise to complication as 'benami' in nature. However, legally, the property income will be assessed in the hands of the 'real' owner, who will also get the benefit of deduction for interest on borrowings.
  1. Can I reinvest this money into another property under my name?
    It won't count as reinvestment for claiming any tax reliefs.
  2. If not, then can we jointly own the new property?
    Joint ownership is fine.
  3. My mother also has 4 other flats under her name. Is there any law that prohibits you from reinvesting this money into real estate and escape the capital gains tax, as I believe the restriction is to a maximum of two properties only? Is this correct?
    Reinvestment in another residential property of the capital gains is allowed under sec 54 without any limit on properties.
  4. Is investing the proceeds of this sale under NABARD bonds my only choice?
    No. See above.