I have held shares in a listed company for five years. The company has a buyback offer at a price much higher than the current market value. The offer tempts me. As the transaction would not take place through a stock exchange, will I still enjoy the exemption from income tax on my long-term capital gains?
- Tarana Desai, Aurangabad
A long-term capital gain tax arises when a share is sold through a recognised stock exchange. Selling through the exchange results in STT (Securities Transaction Tax) due to which the transaction is recognised and the long-term capital gain tax is then exempt from tax under Section 10(38). Since the buyback is not through a recognised stock exchange, the company will not pay STT. You cannot get the exemption under Section 10(38).Your gains will be taxed at 20 per cent (surcharge and education cess extra) with the indexation benefit, or at 10 per cent without indexation benefit, whichever is more beneficial.
I would suggest that all the employees should try to convince the management asking them to appoint a stock broker of a recognised stock exchange. He will "buy" these shares, issue official bills and charge STT for the same. This will save tax and company can pick up shares from the stock broker.
I will soon leave India for a new job in the Middle East by May 1. My job will entail coming back to the country. How do I get the Non-Resident Indian (NRI) status for tax purposes and tax consequences?
- Ashok Parikh, Bilimora
A tax payer's residential status as per tax laws in India depends on how long he resides in the country physically.You are treated as a resident for tax purposes if you are in the country for 182 days or more in a financial year. Also, if you are in the country for at least 60 days in a financial year and at least 365 days in the preceding four years. The 60-day period is to be taken as 182 days if you left India for employment abroad.
If you do not comply with either of the two conditions, you are treated as a non-resident for tax purposes. As you are leaving for employment on May 1, you need to stay out of India for more than 182 days in the financial year 2008-09 in order to be treated as an NRI. In case you are a resident for tax purposes, your income outside the country suffers tax in India.
If you become "resident but not ordinarily resident", you are taxed only on income earned or arising in India. As an NRI also you are taxed only on income that accrues or arises in India. Thus ,only if you are a resident, your income outside the nation suffers tax. Thus, your income in Middle East will not suffer tax back home.
Can I claim Leave Travel Allowance (LTA) benefit on the travelling expenses of my parents who are not dependent on me?
- Lawrence D'souza, Panjim
Yes. There is no requirement in Section 10(5) that your parents should be dependent on you to qualify for LTA exemption. However, the exemption is in respect of an allowance for 'leave travel'. Hence, to claim the allowance you need be on leave and spend the money on travel.I wish to invest in PPF to claim a tax exemption under Section 80C. Are the interest and principal amount taxable when I receive them on maturity after 15 years?
- Jai Baid, Indore
Principal received on maturity of your PPF account will be treated as a capital receipt. It is your own money that you get back and hence it is not taxable. Interest accrued and received on maturity will not be taxable since it the same exempt under Section 10(11) of the Income Tax Act.There was a proposal to charge Income tax on withdrawals of savings investments on which a person enjoys tax benefit. But this has not yet been translated into law.
