If per day living allowance is used when abroad, it is tax exempt in India

Unused amount of allowance would be taxable


I live in Munich, Germany and own an apartment here. I intend to sell this property and buy a property in India. How will this financial transaction be taxed in India?

—Arush Khanna

Under the income-tax law, gains arising from the sale of your property in Germany will be taxable in India as capital gains if:

(a) You qualify as a Resident and Ordinarily Resident in India in the year of transfer; or

(b) You qualify as Non-resident or Resident but Not Ordinarily Resident in India in the year of transfer and the sale proceeds are received directly in India (i.e. first receipt in India).

Residential status is dynamic for income-tax purposes and needs to be determined each financial year.

However, under the Double Taxation Avoidance Agreement (DTAA) between India and Germany, gains arising from sale of property in Germany can be claimed as exempt from tax in India if:

(a) You qualify as Resident of Germany under the DTAA between India and Germany (depending upon the conditions in the DTAA); and

(b) Tax Residency Certificate is obtained from German tax authorities.

In case the gains are taxable in India and exemption from tax could not be claimed under DTAA, then, depending upon the period of holding of the property, capital gain will be considered as either:

(a) Long term capital gain (LTCG): period of holding is more than 36 months

(b) Short term capital gain (STCG): 36 months or less.

LTCG is taxable at 20% plus surcharge, if applicable, and education cess. STCG is taxable at normal slab rates. The LTCG can be claimed as exempt from tax to the extent it is re-invested in India in specified bonds (within 6 months) or a residential house in India (to be either purchased within 2 years or constructed within 3 years of transfer of the land). There are certain restrictions, however, on the sale of new house bought and the quantum of investment made in bonds.

As you intend to buy a property in India, you may claim exemption from tax in India.

If the capital gains remain un-invested till the due date of filing of India tax return (31 July) for the relevant financial year, you may put the amount of capital gains in a capital gains account scheme with a bank (no later than the due date of filing your India tax return) and subsequently withdraw this amount for re-investment. If the entire amount is not reinvested or not deposited in the scheme, the remaining portion of the gain will be taxable.

Tax on capital gains (long-term or short-term) can be either paid by way of advance tax in four instalments or before filing of a tax return by way of self-assessment tax along with interest by 31 July.

I want to save a big portion of my per day allowance that I receive in New York, US. I also want to bring or remit this amount to India. I want to know if I will have to pay tax for bringing this money into India?

—Shikha Sehgal

As per Indian income tax laws, per day allowance paid to meet ordinary daily living expenses, while an individual is away from his normal place of duty, are exempt from tax to the extent such expenses are actually incurred. Therefore, the amount of allowance that is not spent on ordinary living expenses would be taxable.

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

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