FEMA Laws On Acquisition And Transfer Of Immovable Property In India

A person who is a citizen of India, resides outside India, generally NRI can acquire any immovable property in India other than plantation property / agricultural land / farm house. He can transfer any immovable property other than agricultural or plantation property or farm house to:

1. A person resident outside India, who is a citizen of India or
2. A person of Indian origin, resident outside India or
3. A person resident in India.

He may transfer plantation property / agricultural land / farm house acquired by way of inheritance, only to Indian citizens permanently residing in India.

For acquisition of property, the payment can be made out of

1. Funds received in India through normal banking channels by way of inward remittance from any place of India or
2. Funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the regulations made by Reserve Bank Of India from time to time.

It is pertinent to note that such payment cannot be made by foreign currency notes or traveller’s cheque and it can be only in the mode mentioned. 

A PIO may acquire any immovable property in India by way of inheritance from any a person resident in India or a person resident outside India who had acquired such property in accordance with the provisions of FEMA regulations at the time of acquisition of the property.

A PIO may transfer any immovable property other than agricultural land / Plantation property / farm house in India.

1. By way of sale to a person resident in India.
2. By way of gift it to a person resident in India or a Non Resident Indian or a PIO.

A PIO may transfer agricultural land / Plantation property / farm house in India by way of sale or gift it to person resident in India who is a citizen of India. 

Repatriation of Sale Proceeds

In the event of sale of immovable property other than agricultural land / farm house / plantation property in India by NRI / PIO, the authorized dealer will allow repatriation of sale proceeds outside India provided;

1. The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of FEMA Regulations;
2. 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
3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

In the case of sale of immovable property purchased out of Rupee funds, ADs may allow the facility of repatriation of funds out of balances held by NRIs/ PIO in their Non-resident Rupee (NRO) accounts up to US$ 1 million per financial year subject to production of undertaking by remitter and a certificate from the Chartered Accountant in the formats prescribed by the CBDT.

Can You Invest In A House Property Abroad To Avail Capital Gain Exemption In India?

Generally, a tax payer in India can invest in a house property to claim exemption on capital gain arising out of sale of another house property. An individual or HUF, may invest in a house property to save from paying capital gains tax and this is governed by Section 54 and Section 54 F of the Income Tax Act, 1961. 

Conditions of Exemption :
(i) The capital gains should arise from the transfer of the long term capital assets being buildings or lands that are residential property.
(ii) The income from such residential house shall be assessable under the head "Income from House Property".
(iii) The transferor assessee should have purchased a residential house within a period of one year before or two years after the date of transfer or in the alternaitve, the assessee should construct a residentail house within a period of three years from the date of transfer of the original house.
(iv) The amount invested in the purchase or construction of new residential house should either be equal to more than the gain, or where it is less than the amount of capital gain, the shortfall shall be taxable under section 45 (1) of the Act.

Amount of Exemption:
The capital gain accruing as a result of the transfer of the residential house to be dealt with as under:
(i) where the amount of capital gain is equal to or less than the cost of the new asset, being the new residential house purchased or constructed, the whole of the capital gain shall be exempt.
(ii) Where the amount of capital gain is higher than the cost of the said new  asset, the amount of capital gains not so invested or utilized is to be charged to capital gain under section 45 of the Act. In other words, only the amount equal to the cost of the new asset will be exempt.

What would be the amount of exemption?
The amount of exemption depends upon the fact whether the cost of the new asset exceeds of falls short of the net consideration arising out of the transfer of the net consideration arising out of transfer of the original asset. The amount of exemption will be determined as under:
(i) If the cost of the new residential house property is greater than the net consideration arising from the transfer of original asset, then the entire capital gains will be exempt from tax.
(ii)If the cost of the new residential house is less than the net consideration arising from the transfer of original asset, then the amount of exemption will be equal to

Capital gains on transfer of original asset * Cost of new asset / Net consideration.

(iii)Cost of new residential house held include the amount depreciated in an account under the Capital Gain Account scheme on or before due date furnishing return of income.

To avail of the exemption can the new residential house be acquired or constructed in a place outside India?
This is the common question most of the NRI s ask before selling their ancestral house or going for a second home.
Though the income tax Act is not explicit in this matter, there are judicial controversies at the level of income Appellate Tribunal. The decisions where divergent views have been taken are:
(i) Leena J. Shah v. Asst. CIT [2006] 6 SOT 721 (Ahd.).
In this decision, the Ahmedabad Tribunal has expressed the view that the words 'purchase/construction of a residential house', in section 54F on plain and simple reading, mean that the purchase/construction of a residential house must be in India and not outside India. Therefore, the benefit under section 54F is not allowable for residential house purchased/constructed outside India.
(ii) Mrs. Prema P.Shah v. ITO [2006] 282 ITR (AT) 211 (Mumbai)
This decision has been given in the context of the section 54 of the Act by the Mumbai Bench of the Inccome-tax Appellate Tribunal. In this case, the assessee sold a property in Mumbai and purchased one in London. She claimed exemption under section 54, showing long term capital gains as Nil .In the respect of the claims for exemption various issues were raised, one of which was that exemption cannot be allowed because the property acquired is in London - not in India. On this issue, the Tribunal decided in the favour of the assessee holding that section 54 did not exclude the right of the assessee non-resident in instant case to claim exemption in respect of the property purchased in a foreign country, if all other conditions laid down in the section were satisfied, merely because the property acquired is in a foreign country. Accordingly, the assessee was entitled to exemption under section 54.
(iii) The decision in the case of Mrs.Prema P.Shah has been followed by another Bench of the Tribunal in the case of ITO v. Dr.Girish M.Shah I. T. A. No. 3582/MUM/2009 dated February 17, 2010.
(iv) Recently. the Bangalore Bench of the ITAT vide order dated October 12, 2012, in the case of Vinay Mishra v. Asst. CIT[2012] 20 ITR (Trib) 129 (Bangalore) has taken a decision similar to that in case of Mrs. Prema P.Shah (supra) holding that exemption under section 54F cannot be denied on the ground that residential house acquired was situated outside India.



Considering the fact that several Tribunals have allowed exemption for capital gains for the investments abroad, it will not be inappropriate to claim exemption under Section 54 for the purchase of house property out of India till it is decided to the contrary in High Courts or Supreme court or notification is given in the Income Tax Act. However, this is a personal view of the author. For any queries about investing in a house property to avail capital gain exemption in India, please email karthikeyan.auditor@gmail.com or call +91 98422 10422

Best Time to Claim Social Security Benefits

The age that you begin Social Security benefits has a huge impact on the size of your monthly benefit payments. By the age of 62, you will be eligible to claim Social Security benefits. However, you will be eligible for 100% of your retirement benefits at the age of 65. Your monthly benefit amount will be permanently reduced if you start any earlier, and permanently increased if you wait up until age 70. For instance, if you begin your retirement benefits at age 70, the monthly benefit will be 32% larger than if you began at full retirement age.

What is the best age to start your retirement benefits?

Are you still working? Some people, especially construction workers and other physical laborers, are less able to handle work at 62, even though they don't qualify for disability. They may be good candidates for early retirement.

However, if you're still able-bodied and interested in working, you might want to avoid claiming early retirement benefits. If you're earning a high salary, you'll miss the opportunity to boost your Social Security payment amount.

How's your health? If you're convinced - either by genetics, research, or the amount of time you spend in doctors' offices -- that you'll have a shorter lifespan than your peers, it doesn't make much sense to delay your retirement benefits although your benefit payments get permanently reduced.

What's your break-even point? If you had a good idea of when you were to die, you could compare your total benefit payments under all three common scenarios - age 62, full retirement age, and age 70. Financial planners prefer to calculate your break-even point -- that's the age at which two of your total lifetime benefit amounts become equal to each other.

If you expect to live longer than average, it would be smart to delay the start of benefits up to age 70 if possible, so that a larger monthly benefit is received for the rest of your life. That extra money might well be needed in your later years, particularly if you are running low on other retirement resources.

What will you do with the money?  If you plan to invest the money, your investments would need to earn more than 7% annually to equal what you would make by delaying benefits until full retirement age.

Do you have dependents? Your family's dependents and survivors’ benefits may be reduced if you claim early retirement benefits.

Deciding when to start your Social Security benefits can be complex. To learn more about retirement age options and retirement planning, please email info@gkmtax.com.

Pricing, Billing & Collection - What Accounting Firms Can Do To Run Their Businesses More Efficiently and Effectively

Accounting firms provide priceless advice to businesses. However, they often struggle to effectively run their own businesses due to inefficiencies in pricing, billing & collections. Below par performance in these areas can lead to a troubled cash flow, cuts on the bottom line and dissatisfaction among the firm’s personnel.
 How can an accounting firm improve on its billing and collections practices?
Evaluate initial client interview procedures: Formalize your client approval process.
Do not discount your pricing to gain work: Your service value is communicated by all that you do including the pricing. If you undervalue your services, you are selling yourself short.
Try to get retainers from new clients: Three months of fees is an acceptable amount to ask for at the start; after that the retainer can be replenished for ongoing work.
Adopt a centralized approach towards client engagement letters, fee schedules and billing: Your firm's administrator sending out all client engagement letters, fee schedules & billing will ensure consistency in the language and billing and collections practices.
Ensure that bills are clear and brief: With timely bills that shows clearly the products delivered, clients will be more inclined to pay their bill promptly.  This practice increases awareness of the value of your service.  For large unpaid bills, it would be best to ask for the payment in three equal installments via credit card. This allows the client to earn credit card reward points. Communicate with clients regularly. Do not call only when seeking to collect a late payment.
Give everyone who discusses billing and collections access to client spreadsheets: Allow all stakeholders access to client spreadsheets so that detailed information about the client is readily available, allowing for tracking trends and also spot clients who used to settle bills regularly earlier, but stopped doing that now.
A major part of establishing and executing an effective billing process is to levy the right fees, send in bills on time and handle collections professionally and courteously. Accountants also have to communicate their value such that the clients realize the worthiness of the service received. Failure to improve an ineffective billing process hurts the firm’s profits, cash flow and morale. Don’t let this happen to your accounting firm. After all, happiness is a positive cash flow!

Repatriation of home sale funds from India - Article in The Hindu

We live in an age where many youngsters go abroad for higher studies or job and have already settled down in other countries. Many of them are citizens of another country and have only family/ancestral ties to their homeland – India.

The other side of this situation is that the aging parents who are still in India must fend for themselves and find it easier to live in gated communities or in senior citizen homes to have easier access to immediate medical care, companionship, safety and help with errands.

As a result, many of the older generation are selling off independent homes and moving into such gated communities/senior homes. It goes without saying that a substantial portion of sale proceeds is willed to their Non-resident Indians (NRI) children. 

Sometimes, ancestral property is also received by NRIs by way of partition deeds or gifts from parents or grandparents and they prefer to sell the property and repatriate the funds.

Most NRIs who have settled down abroad would like to repatriate these funds from sale proceeds. It may be of use for the education of their children or to buy a property in their adopted homeland.

Additionally, with most countries tightening up on foreign investments and related reporting, it has become a hassle to maintain accounts and property here and then report the same to tax authorities in both countries.

Residents of the U.S. especially face this dilemma as they are required to report every year details of their foreign financials assets held in excess of certain prescribed dollar limits.

Thus, it is essential to be aware of the formalities involved in repatriating funds abroad from India as such repatriation leads to movement of forex and is governed by RBI and FEMA regulations.

General permission is available to the NRIs or Person of Indian Origins to repatriate the sale proceeds of immovable property inherited from a person resident in India.

The NRIs/PIO may repatriate an amount not exceeding USD one million, per financial year, on production of documentary evidence in support of acquisition / inheritance of assets, an undertaking by the remitter and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes.

The sale proceeds of immovable property acquired by way of gift/inheritance should be credited to NRO account only. From the balance in the NRO account, NRI/PIO may remit up to USD one million, per financial year, subject to the satisfaction of Authorized Dealer and payment of applicable taxes.

The capital gains tax is also payable in their country of residence though they can avail credit for the taxes paid in India.

Breaking ties with the homeland is never an easy task, no matter how green the grass may be on the other side. Questions of inheritance, sale and repatriation of funds only add to the confusion.

G. Karthikeyan,

Coimbatore-based

Chartered Accountant.

Street-smart shopkeeper!

Business Talk!

A shopkeeper was dismayed when a brand new business much like his own opened up next door and erected a huge sign which read 'BEST DEALS.' He was horrified when another competitor opened up on his right, and announced its arrival with an even larger sign, reading 'LOWEST PRICES.' 

The shopkeeper panicked, until he got an idea. He put the biggest sign of all over his own shop. It read: 'MAIN ENTRANCE' 

Home loan, tax & necessity - Article in The Hindu Habitat dtd 04/27/2013

Home. No matter who we are or where we are, the word immediately brings to mind recollections of childhood, school, homework, parties and quite a few other memories. A lot of factors go into the decision making process which ends in the purchase of a house. Considering that it is perhaps one of the biggest personal financial investments that any person would make during their lifetime, the decision is not easy to make.

India may be a vast country but most people prefer to stick close to their roots. Language and culture barriers ensure long distance migration is almost never considered. In countries such the U.S., people easily migrate from the east coast to the west because language and culture barriers are almost non-existent. Add to this the fact that the style of living, resources available etc also remain uniform throughout the country. This is also the reason why real estate prices do not vary much in the U.S. In India, however, the real estate market is booming and land prices are at an all-time high. The global market is currently in recession and the effects are rippling and spilling over into the Indian economy as well, slowly but surely. The government has also provided some tax sops to make home buying an attractive proposition even during a recessionary phase.

The Finance Bill 2013 has an additional proviso for first time home buyers (provided the property is self-occupied) in the form of section 80 EE of the Indian Income Tax Act. The concept of first-time homebuyer tax benefits is borrowed from the U.S. This section provides the following:

1. Loan amount should be less than or equal to Rs. 25 kakh while the value of the property should be less than or equal to Rs. 40 lakh.

2. The loan should be disbursed during the current financial year (01-04-2013 to 31-03-2014).

If the above conditions are satisfied, the said buyer may take an additional deduction of Rs. 1 lakh for interest paid on loan under section 80EE. In case the buyer is not able to claim the whole benefit of deducting Rs. 1 lakh under section 80 EE, he also has the option of carrying forward the balance interest for a claim in the succeeding financial year. This is in addition to the standard home loan interest deduction allowed of Rs. 1.50 lakh under section 24(b) if the house is self-occupied and there is no upper limit of deduction of interest in case of the property let out.

G. Karthikeyan,

Chartered Accountant, Coimbatore.

http://www.thehindu.com/todays-paper/tp-features/tp-propertyplus/home-loan-tax-and-necessity/article4659502.ece