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Is there any restrictions, if I need foreign exchange for travelling expenses

H. P. Ranina / 18 June 2012

As I am planning to return to India this month, I am debating whether I should bring all my funds to India, which will give me the maximum amount in rupees on conversion at the rate of Rs55 per dollar. However, subsequently if I need foreign exchange for travelling and miscellaneous expenses, would there be any limits or restrictions? - C Venugopal, Sharjah

Once you become resident in India under the Foreign Exchange Management Act, you will be able to repatriate your rupees for any purpose whatsoever upto a limit of $200,000 in every financial year. You will also be able to utilise your rupee funds for foreign travel upto a maximum of $10,000 in every financial year. For medical expenses to be incurred in foreign hospitals, there is no limit.

While you are in India, you can also make miscellaneous remittances for all permissible current account transactions. The limit for this has been increased from $5,000 to $25,000 per financial year. To avail of this facility, you have to send a letter to your bank containing information about the names and addresses of the beneficiaries to whom the amount is to be remitted, giving the purpose of the remittance. The amount would be remitted from your bank account by issue of cheque or demand draft.

I had gifted an amount to my wife, which she utilised for purchase of property which we jointly owned. This property has been recently sold. We wish to deposit monies in the bonds, which would give us exemption from capital gains tax. What is the limit up to which we can claim exemption if both of us invest the amount in the bonds? -PA Khan, Doha

Assuming that each one of you has made capital gains, after claiming the indexed cost of acquisition, of more than Rs5 million each, you can subscribe to the notified bonds under section 54-EC of the Income-tax Act, 1961. The maximum investment in the bonds to be made by each tax payer is restricted to Rs5 million. The bonds, which qualify are those issued by the National Highway Authority of India and the Rural Electrification Corporation Limited.

These bonds have to be subscribed by your wife and you within six months from the date of sale of the property, assuming that such property was held by both of you for more than three years. In case the taxable capital gains made by your wife exceed Rs5 million, such excess amount will be treated as your income and will be added to your taxable capital gains in excess of Rs5 million.

Hence, you will have to pay tax on the aggregate of these two amounts at the rate of 20.6 per cent. Your wife will not be liable to pay the tax on her taxable capital gains because such amount will be clubbed with your capital gains under section 64 of the Income-tax Act, 1961, as the property was originally purchased by her out of funds gifted by you.

I have inherited some amount of money. While the interest rates are very high in India at present, I have been advised to place the funds as deposits with reputed banks. However, I am more inclined towards investment in a property, the rent from which would give a reasonable return apart from future appreciation in value. From the tax angle, which would be a better investment? - LC Singh, Ruwi

The interest which you earn on bank deposits will be fully taxable. In the case of non-resident Indians, tax is deducted at source at the maximum rate of 30 per cent. In case you are liable to pay tax at a lower rate, you will be able to get a refund of the excess tax paid after the tax return is filed.

In case of property, your rental income will be taxed after claiming the deduction for municipal taxes and 30 per cent of your net rent as a standard deduction. Therefore, the tax liability is considerably reduced in the case of rental income. The tax on the net rental income will be paid by you by way of advance tax in three instalments of 30 per cent, 30 per cent and 40 per cent by September 15, December 15 and March 15 respectively of each financial year.

Hence, you will pay only such amount of tax on your actual taxable income and though the return will have to be filed, the question of claiming a refund may not arise. As and when you make capital gains on sale of the property, you will be entitled to claim exemption under section 54 or 54-EC of the Income-tax Act, subject to the fulfilment of the relevant conditions under each provision. 

The writer is a practising lawyer, specialising in tax and exchange management laws of India

Money Times adviser H.P. Ranina answers questions from our readers. Write to: Money Times, P.O. Box 11243, Dubai, UAE or CLICK HERE

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