Sum assured received from a life insurance policy claim is exempt from tax in India

Long-term capital gains (LTCG) on sale of equity oriented mutual funds are exempt from tax in India


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I am a non-resident Indian (NRI), living in Jamaica for several years now, and visit the country more than once every year. Recently, my brother, 55, passed away in a road accident. He had a life insurance cover of Rs10 crore and I was one of the beneficiaries of the policy. I don’t have any source of income in India.

a. If I choose to invest my share in monthly income plan mutual funds, what will be the tax implication on me?

b. Will I have to file income tax return for this income if it exceeds a certain limit?

c. Will I have to show this in my tax returns that I file in Jamaica, even though I don’t ever plan to bring or use this money here?

—Rohan Patel

In case of death, any amount received under the life insurance policy is exempt from tax in India.

You may invest the amount as per your discretion. If you invest in a monthly income plan of mutual funds, the dividend received from the plan will be exempt from tax.

Also, there will be tax implication on transfer of units of mutual funds depending on the type of mutual funds and the period of holding of the same. Units of equity-oriented mutual funds, which are held for more than 12 months, are considered as long-term capital asset. 

Long-term capital gains (LTCG) on sale of equity oriented mutual funds are exempt from tax in India. Short-term capital gains (STCG) on the same are taxable at flat 15% (excluding surcharge and cess). 

Units of non-equity (debt) oriented mutual funds held for more than 36 months are considered as long-term capital asset. 

LTCG on sale of debt mutual funds after giving benefit for indexation is taxable at flat 20% (excluding surcharge and cess). 

STCG on the same is taxable as per the slab rates applicable for the individual.

In case your total taxable income (i.e., gross income excluding the exempt income) exceeds the threshold for taxable income for a particular financial year, there is a requirement to file an Indian income-tax return. The threshold for financial year 2016-17 is Rs2.5 lakh.

Do remember that India and Jamaica do not have any Double Taxation Avoidance Agreement (DTAA) to avoid double taxation. For tax implications in Jamaica, please consult a Jamaican tax subject matter expert.

I have to remit Rs1 lakh (after converting to Australian dollar), to an Australian vendor. He has tax residency certificate from Australia and he doesn’t have an Indian Permanent Account Number (PAN). What should be the tax deducted at source (TDS) by me?

—Udhayashankar. G

Under the India income-tax law, any person making payment to a non-resident is required to withhold tax (TDS) in India if such amount is taxable here. 

The rate at which tax needs to be withheld depends on many factors such as nature of transaction or income (professional income, interest, royalty, payment for goods and services), type of deductor (individual or corporate), type of deductee (individual or corporate), amount of payment, and applicability of the provisions of the DTAA.

As per the income-tax law, where PAN is not available, the tax needs to be withheld at the higher of the following:

(a) at the rate specified in the relevant provision of the Income-tax Act, 1961; or

(b) at the rate or rates in force; or

(c) at the rate of 20%.

The rate or rates in force means the rate specified in annual finance Act or DTAA, whichever is more beneficial.

Effective June 2016, the higher rate of 20% is not applicable for payments made to non-residents, even if PAN is not available, provided the following details and documents are submitted to the deductor:

(a) Name, e-mail ID, contact number;

(b) Address in the country where the deductee is resident;

(c) Tax residency certificate

(d) Tax Identification Number of the deductee

The TDS rate will therefore depend on whether or not the income is taxable in India and the lower of the rate as per the income-tax law and DTAA.

Sonu Iyer is tax partner and people advisory leader, EY India.

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