Reader's corner: Taxation

What’s the difference between non-resident external (NRE) and non-resident ordinary (NRO)? As a person deputed abroad (non-resident), which account should I open?

As a person deputed abroad, you can open any of the two accounts or even both. You will probably need both as there are different purposes for which these accounts can be used. The primary distinction between NRO and NRE account is the taxability and repatriability.

In NRO accounts, the permissible credits are inward remittances from outside India, legitimate dues in India, current income like rent, dividend, pension, interest, and so on. Similarly, the permissible debits are local disbursements, remittance outside India up to Rs 10 lakh (subject to the conditions), transfer to another NRO/foreign currency non-resident (FCNR) accounts, investments in India.

On the other hand, in an NRE account, permissible credits are inward remittance from outside India, interest accruing on the account, maturity proceeds of investments (if such investments were made from this account or through inward remittance), etc. Similarly, permissible debits are local disbursements, remittance outside India, investments in India, etc. The interest earned on NRE account is exempt so long as you continue to be a non-resident under the foreign exchange regulations while interest earned on NRO accounts is fully taxable.

Please bear in mind that where you are holding any bank accounts in India, you should inform your banks about your leaving India so that they can designate your existing bank accounts to NRO status. Above is the general guidance and you may contact your bank for further details and clarification. 

I am about to sell my house. My project was delayed. I paid the entire money in the first year. In the second year, I registered the flat. The developer got the occupation certificate in the seventh year. We received the house much later. Which of these dates should be considered to calculate the capital gains after selling my home?

There is no specific provision contained in the tax laws on this aspect, and it depends on the various specific circumstances. According to one view, an under-construction property, till the time possession is available, is merely a right. The holding period for disposal of such under-construction property shall start from the date of registration. Where a flat is constructed, the holding period of the flat will commence from the date when possession is taken over or available for the user.

It may also be possible to argue that holding period of flat should start from the date of allotment of the flat. A reference can be made to the Central Board of Direct Taxes (CBDT) Circular No 471 dated October 15, 1986, wherein it was clarified that the period of holding of the property booked by an assessee under self-finance scheme of Delhi Development Authority (DDA) will be counted from the date of issuance of allotment letter by the DDA. This Circular may be referred for the property under-construction-linked plan as well. However, this is not free from litigation.

Various judicial precedents are available in this regard. It is essential to pay attention to surrounding facts and circumstances such as terms and conditions of the allotment letter, whether transformation from 'right' to 'building' is automatic or dependent upon conditions, payments made by the buyer, etc. Considering the entire scenario, one may accordingly take the position as to from which date the period of holding of flat should start – whether it should be from the date of allotment, date of registration or date when you got the occupation certificate and the property is ready for possession.

The writer is partner and leader, personal tax, PwC India. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in