Taxation of DDBs

TAX QUERIES

I invested Rs 3,600 in DDBs of Sardar Sarovar Narmada Nigam in January, 1994. They will mature this year and I will receive around Rs 50,000. I stand to make a gain of Rs 46,400. Will this amount get taxed as interest income or as capital gains?

Suresh Shah, Mumbai

The Central Board of Direct Taxes (CBDT) has recently clarified that the difference between the original amount invested in deep discount bonds and the maturity proceeds will be deemed as income by way of the interest. It will be considered as income in the year of redemption and will not constitute capital gains.

The issuer (Sardar Sarovar) will deduct income tax at source from the interest income while giving you the redemption proceeds. You should claim credit for such tax deducted at source in your assessment while filing the return of income for the year.

If I buy a flat and make my wife the joint holder, is it presumed that both are part owners? Though I have made the entire payment for the flat, I wish to include her name for safety measures so that in case of my demise, the flat remains in her name.

John Braganza, Mumbai

As a general rule, when a property is purchased in two or more names without specifying the share, it is presumed that the property is being purchased equally by each of the mentioned person.

To avoid disputes later, it is advisable to mention in the purchase document that you have made the entire payment for the flat purchase and that the name of your wife is being added for the sake of convenience only. I am a non-resident Indian and also a US citizen. I had purchased a flat with the money that was lying in my Non-Resident Ordinary Rupee (NRO) account, which I had earned in India few years ago. Will I require permission of the Reserve Bank of India (RBI) to sell the flat? The purchaser wants to deduct tax at source during the transaction. What is the solution?

Sukhinder Singh, via e-mail

You will not require RBI's permission for sale of the flat since you are of Indian origin, even though you are no longer an Indian citizen. Since you are a non-resident, the purchaser is required to deduct income-tax at source as per section 195 of the Income tax act, 1961. This can be avoided if you obtain a certificate from the income-tax department for non-deduction of income-tax or deduction of income-tax at a lower rate.

To obtain this certificate you will need to make an application to the income-tax officer in a prescribed format. You will have to give reasons to the income-tax officer for the application and justify the same. For example, you can get the certificate if you propose to buy a residential house and/or invest the sale proceeds in capital gain bonds.

The writer is a chartered accountant