I’m a retired overseas citizen with an OCI card and a tax resident of India, and have been submitting annual returns, together with overseas pensions credited to my Indian account, often. My spouse, an Indian citizen and homemaker, has no revenue and isn’t a taxpayer. Can I switch funds from overseas to her as a present or by promoting investments, insurance coverage maturity funds, or pension payouts? If sure, what would be the tax implications for her, and might she make investments the funds in financial institution FDs, fairness funds, or property?
—Identify withheld on request
On the outset, such a present must be in compliance with the Overseas Trade Administration Act (FEMA), 1999. Below FEMA rules, a resident Indian is permitted to retain funds or investments made outdoors India if such funds had been held or the investments made when the particular person was a non-resident. Nevertheless, in respect of every other revenue acquired outdoors India, the rules require the resident to repatriate the funds to India inside 180 days.
On this case, your spouse, who’s a resident beneath FEMA, could be required to repatriate any funds acquired by her (together with as a present) again to India inside 180 days of receiving the funds. Due to this fact, any abroad investments to be made by your spouse must be undertaken solely beneath the Liberalised Remittance Scheme, by remitting the funds from India.
From an Indian income-tax perspective, quantities acquired by the spouse from her husband, by means of present, are exempt as they’re acquired from a specified relative. Nevertheless, any revenue arising out of investments made by the spouse out of the gifted funds could be clubbed together with the revenue of the husband.
The clubbing provisions apply solely in respect of the revenue earned out of the transferred funds or property, and to not the revenue arising from reinvestment of the clubbed revenue.
For instance, when you give a present 10 lakh to your spouse and this quantity is invested in shares. which yields a dividend of 1 lakh, the dividend revenue of 1 lakh acquired by your spouse could be clubbed as revenue in your palms. Any revenue arising out of the reinvestment made by your spouse of the 1 lakh dividend revenue acquired, could be taxable in her palms and never clubbed in your palms.
In case of clubbed revenue, overseas tax credit score, if any, in accordance with the tax treaty or Revenue Tax Guidelines must be claimed by the husband who’s providing such revenue to tax, although tax could have been withheld or paid within the title of the spouse within the nation of supply.
Curiously, although the revenue earned by the spouse could be taxed within the palms of the husband, the spouse would nonetheless be required to file her return of revenue in India, even when it’s a nil return, as a result of she owns a overseas asset outdoors India in the course of the 12 months. She could be required to reveal such property in Schedule FA in her tax return.
,Mahesh Nayak, chartered accountant, CNK & Associates
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