Latest news with #P.R.Bhuta&Co
Mint
21-07-2025
- Business
- Mint
How are right entitlement transfers taxed?
I am a non-resident Indian (NRI) currently residing in the United Arab Emirates (UAE). I hold shares of Mahindra Logistics Ltd, and it has just announced a rights issue. I don't want to subscribe to the issue, but want to sell the rights entitlements to a fellow NRI. What are the tax implications of doing that? The right to subscribe to financial assets (such as equity shares) is distinct from such assets themselves. The Hon'ble Supreme Court of India has held that the right to subscribe to additional securities on a rights basis arises only after the company announces the rights issue. Until such an announcement, this right, though inherent in the shareholding, remains inchoate and does not crystallise. Upon announcement, this 'Right Entitlement' (RE) becomes a separate and independent capital asset, transferable independently of the underlying shareholding. If not exercised or renounced before the issue closing date, REs lapse and are extinguished. These REs are generally qualified as short-term capital assets, as the offer for rights issues is typically open for a limited period during which the REs can be renounced. REs for listed companies are credited to the demat accounts of eligible equity shareholders who may renounce either: • On-market, via the stock exchange (which attracts Securities Transaction Tax (STT)), or • Off-market, through a private transfer (which does not attract STT). In both scenarios, any gain from the transfer of REs is taxable as short-term capital gain at the applicable slab rates, with the entire sale consideration becoming taxable, since the cost of acquisition is deemed to be nil as per Indian tax law. From a cross-border tax perspective, since REs are distinct from equity shares, they fall under Article 13(5) of the India-UAE Double Taxation Avoidance Agreement (DTAA), which is the residuary clause that covers gains from the alienation of property not covered elsewhere in Article 13. Under this clause, such gains are taxable only in the country of residence, i.e., the UAE, and not in India. Consequently, capital gains from the sale of REs by a UAE tax resident are not taxable in India under the India-UAE DTAA. To claim this benefit under the India-UAE DTAA, the following compliance is required: (a) obtain a valid Tax Residency Certificate (TRC) from UAE authorities; (b) submit Form 10F on the Indian income tax portal and (c) file an income tax return in India disclosing the capital gain and reporting it as exempt under Article 13(5). Harshal Bhuta is a partner at P. R. Bhuta & Co. Chartered Accountants.
Mint
14-07-2025
- Business
- Mint
Is gifting money to my NRI son's NRO account taxable?
My son is an NRI and wants to invest in a foreign exchange-traded fund (ETF). Right now, he doesn't have enough money in his NRO account. I'm planning to gift him the required amount by transferring it to his NRO account. I want to know if there will be any tax implications for either of us because of this gift? Under Indian tax law, any gift made to a 'relative' is fully exempt from income tax, regardless of the amount. Since your son qualifies as a relative, your transfer of funds to his NRO account as a gift will not trigger any tax liability—neither for you nor your son. As per the Reserve Bank of India's Liberalised Remittance Scheme (LRS), a resident Indian can remit up to $250,000 per financial year for permitted purposes, including gifts to NRIs into their NRO accounts. While this is essentially a rupee-to-rupee transfer, the LRS includes such gifts in its overall cap. If your total outward remittance under LRS exceeds ₹ 10 lakh in a financial year, then Tax Collected at Source (TCS) at 20% applies on the excess amount. The remitting bank (authorised dealer) is mandated to deduct this TCS at the time of remittance—even for rupee gifts into NRO accounts, though in practice, some banks may not do so. If TCS is collected, you may adjust it against your income tax liability or claim a refund while filing your return. Once your son receives the funds in his NRO account, he can repatriate the amount to his overseas bank account under the $1 million remittance facility, subject to documentation. This will typically require a Form 15CB certificate from a Chartered Accountant, as required by the bank processing the repatriation. To avoid any future tax scrutiny, it's advisable to execute a formal gift deed or gift declaration letter, documenting the transfer as a bona fide gift. Finally, any income your son earns from investing the funds in foreign ETFs will not be taxable in India, since he's an NRI and such income accrues outside India. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
07-07-2025
- Business
- Mint
Will I be taxed in India for consulting income from a US company?
I am working with a US based company on an H-1B visa for the past six years. I am getting married next month August 2025 and immediately plan to relocate permanently to India. I plan to continue working for the same US company in India, but in the capacity of an independent consultant based out of India. In these six years, I have spent a maximum of month in India during my visits. After I start working from India, will I be taxed on consultancy income that I will receive from the US company? - Name withheld on request If you move back to India in August 2025 and stay for at least 182 days during the financial year (April 2025 to March 2026), you'll qualify as a resident under Indian tax law. However, to determine whether you are an 'ordinary resident' or not, the law stipulates that an individual is classified as a 'resident but not ordinarily resident' (RNOR) if their total stay in India during the preceding seven financial years is less than or equal to 729 days. Given that you have spent less than a month in India each year over the past six years, your cumulative presence in India will not exceed this threshold. Accordingly, you will be treated as an RNOR for FY 2025–26 under Indian tax law. An individual classified as an RNOR is liable to tax in India only on income that: is received or deemed to be received in India; accrues or arises in India; or is deemed to accrue or arise in India. Also read: How is foreign rental income taxed in India? Income earned and accrued outside India is not taxable in India unless it is derived from a business controlled from or a profession set up in India. Since you will be rendering consultancy services from India, even if such services are provided to an overseas entity, the income will be considered to accrue in India and will, therefore, be taxable in India. However, any employment income earned in the US prior to your permanent return to India will not be subject to Indian tax for FY 2025-26. Any salary earned in the US before your move will not be taxed in India. For US tax purposes, you can file a dual-status return for calendar year 2025. This means: You'll be taxed as a US resident up to your departure date, And as a non-resident for the rest of the year (i.e. until 31 December 2025), after you move to India. Consequently, you would not be subject to US taxation on a worldwide basis for the period following your departure, when you are treated as a non-resident alien. As a non-resident alien, consultancy income earned for services performed outside the US is generally not taxable in the US. Furthermore, under the India-USA Double Taxation Avoidance Agreement (DTAA), if your consultancy income does not qualify as 'fees for included services' and you do not have a fixed base in the US, such income shall be taxable only in India, being your country of residence. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
30-06-2025
- Business
- Mint
What happens if you use crypto to fund a foreign company?
I'm a resident Indian and I want to incorporate a company in Dubai to provide fintech advisory services in UAE. The consultant there has told me that I can incorporate a company in free zone simply by transferring crypto-currency as share capital. What are the tax implications and risks of carrying out such a transaction? Incorporating a company outside India, like in a UAE free zone, does not by itself lead to any direct tax implication in India. However, when the capital contribution is made using cryptocurrency, things change. Under Indian tax law, cryptocurrencies are treated as virtual digital assets (VDAs). So, if you use crypto to subscribe to shares in a foreign company, it qualifies as a transfer of a VDA—which is a taxable event in India. Such transfers attract a flat 30% tax (plus applicable surcharge and cess) on any gains made. Deductions are strictly limited—only the original cost of acquisition can be claimed. No other costs like exchange or transaction fees are allowed. Moreover, if the transaction results in a loss, that loss cannot be set off against other income, nor can it be carried forward. In effect, the loss becomes permanently disallowed for tax purposes. These transactions must be reported under Schedule VDA of your Indian income tax return (ITR). Additionally, since you are acquiring shares in a foreign company, this investment must also be disclosed under Schedule FA (Foreign Assets) in your ITR. Beyond taxation, there are foreign exchange law implications. Under India's FEMA (Foreign Exchange Management Act) rules, making capital contributions to a foreign company using crypto is not permitted. Even if UAE allows it, doing so from India could mean violating FEMA—potentially leading to penalties and enforcement actions. In summary, while it may seem straightforward to invest in a Dubai company using cryptocurrency, Indian law imposes significant restrictions on such transactions. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
24-06-2025
- Business
- Mint
Will an Indian beneficiary of a foreign trust face tax liability here?
—Name withheld on request I assume that you qualify as a non-resident under the provisions of the Income Tax Act, 1961 (ITA) and that the trust you intend to establish in the US will be a non-grantor trust. As a non-resident, transferring foreign assets into a foreign trust will not trigger any tax liability for you in India. Additionally, since the trust will be set up solely for the benefit of your children, one of whom is a tax resident of India, this transfer will not be considered a taxable event for the trust, even with respect to the share pertaining to your Indian resident son. Under the ITA, trustees of a private trust act as representative assessees. For specific trusts, trustees are typically assessed in their own names for income explicitly earmarked for the beneficiaries. Tax on any income earned by the trust is levied 'in the like manner and to the same extent' as it would be on the beneficiaries directly. However, when the shares of the beneficiaries are known, the income may be taxed either in the hands of the trustees (as representative assesses) or directly in the hands of the beneficiaries. In your case, the share of rental income attributable to your Indian resident son as a beneficiary will be taxable in India, either in the hands of the trustee or directly in his hands. Your non-resident son will not be liable to tax on his share of foreign rental income in India. As the settlor, you will also not have any tax liability in India on this income, as the trust will be an irrevocable trust. Although the ITA does not expressly exempt the eventual distribution of trust assets to your Indian-resident son from tax, you may rely on judicial precedents to take such a position. Your non-resident son will not be liable to tax in India upon trust distribution too. As a beneficiary, your Indian resident son will be required to disclose the details of the foreign trust in his Indian income tax return under Schedule FA (Foreign Assets). Any taxes withheld/paid in the US on the rental income can be claimed in India while filing ITR, subject to filing Form 67. Considering the legal uncertainty under India's foreign exchange law regarding cross-border trusts, it is advisable to seek professional advice before setting up such a trust with an Indian resident as one of the beneficiaries. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
