Tax Column

Tax Column

I am an individual and a US citizen. However, I have been residing in India from the last six years. I have been filing my return of income regularly, offering income earned in India. I have not disclosed my US income. Kindly let me know whether I have been following the right procedure or not? 


Under the Indian Income Tax Act, a person is said to be a resident if he is staying for more than 182 days in India, in any financial year, irrespective of his or her citizenship. A person who is a resident in India is supposed to offer his income, accrued and received in India as well as outside India. Since you are a resident in India, for taxation purpose, your foreign income i.e. income earned in USA, is also taxable in India. 

Therefore, you have not been following the correct law and now you should start offering income including income earned abroad in your return of income. 

India and USA have a double tax avoidance treaty. Therefore, taxes paid by you on your US income will be available for set-off against taxes payable in India on such income. However, you have to comply with certain procedures such as filing Form No. 67, etc. For your information, since you are a citizen of US, you are also liable to disclose your global income in US and pay taxes accordingly. Again, the taxes paid by you in India on Indian income can be set-off against tax liability determined in US on Indian income. Non-disclosure of global income both in India and US is a serious violation of law which may attract penalty and prosecution. 

I am in employment with a closely held company where I am the managing director. The company has taken a policy of retirement pension in its name where I am a beneficiary. A premium of ₹ 28 lakhs per annum was paid by the company. I was told by the insurance agent that there will be no tax implication in the hands of the company as well as in my individual case. Can you give me your view? 

In my view, the entire premium of ₹ 28 lakhs paid by the company on a policy where you are the beneficiary would amount to perquisite and therefore it is taxable in your hands as salary. The company is supposed to deduct withholding tax in your hand. After deducting the withholding tax, the company can claim such amount as business deduction in its audited accounts, which is allowable. This is subject to the test of reasonableness as provided in Section 40A(2) of the Act. Under Section 17(2) of the Income Tax Act, the premium paid on retirement pension policy would be treated as perquisite as the entire benefit of the policy would go to you exclusively and therefore it is taxable. Therefore in your personal return of income you have to offer ₹ 28 lakhs as perquisite. 

As per my aunt’s will, I inherited gold ornaments and one residential flat. If I sell both these assets now, what would be the tax implication in my hands? I don’t know the exact cost of these assets when it was acquired by my aunty. How does one compute the capital gain? 

In case of an asset inherited by you, its cost would be the cost which your relative would have paid for. However, if the assets inherited by you are acquired by your aunty prior to April 1, 2001 the fair market value of both these assets as on that date would be your cost. If both these assets are long-term assets, you can claim indexation. From the sale consideration reduce the indexed cost. The balance will be the long-term capital gain which is subject to tax at 20 per cent plus applicable surcharge. However, you can acquire another residential house to avoid long-term capital gain tax. You must satisfy the conditions of Section 54 and Section 54F of the Income Tax Act 

I am an individual carrying out two businesses where the total gross receipts of both the businesses are less than ₹ 1 crore. Can I apply provision of Section 44AD of the Income Tax Act in respect of only one business while in another business I will pay the taxes on actual profit? 

In my opinion, there are no express provisions in the Income Tax Act which prohibit from availing provisions of Section 44AD of the Income Tax Act in respect of only one business. Therefore, you can avail provision of Section 44AD of the Income Tax Act in one business to your advantage. For the other business you need not opt for Section 44AD although your turnover is less than ₹ 1 crore. In that case, you have to prepare a separate profit and loss account with all the documents, vouchers, etc. to justify profit less than 8 per cent or 6 per cent of the total turnover.

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