I sold a plot in India last month and want to avoid capital
gains by buying property in the United States. The property
was bought when I was living in India in 1994 and is under
long-term capital gains. How can I avail this benefit?
Whether a property can be bought abroad or not to save
capital gain taxes in India was a matter that was never free
from doubt. Different courts held diametrically opposite
views. However, the recent India Budget clarified that tax
exemption would only be available for properties bought in
India. If buying a property in India is not something that
you would like to pursue, you may consider investing in
capital gains tax-saving bonds. These come with a lock-in of
three years after which you can transfer the maturity
amount to your bank abroad.
In India, the short-term capital
gain tax rate is 15 percent.
However, the level of my other
income (essentially some rent that
I get from ancestral property) puts
me in the 10 percent tax bracket.
So, if I am in the tax slab of only 10
percent, can I pay tax on the capital
gain also at 10 percent? What I am
trying to ask is that if I fall in the 10
percent slab, does my capital gain
tax rate also fall from 15 percent to
— Partha Roy
No. The 10 percent rate is as per
the tax slab applicable to general
income whereas the short-term
capital gain tax (on equity and
equity oriented investments) is a flat 15 percent irrespective
of the tax slab. This means someone who otherwise is in the
31 percent slab will also end up paying the 15 percent tax
rate (on their short-term gains), but equally someone in a
lower tax slab (like you), has to pay at a higher rate.
My father, a senior citizen and pensioner, passed away last
March. He had some bank fixed deposits for which I was the
1. How will his return for the financial year 2013-2014 be
2. Now that I am the nominee, will the interest earned on
bank deposits be added to my income after his death?
3. Being a senior citizen, he was eligible for a higher rate of
interest on his deposits. Will the deposits pay the same high-
er rate for the remaining period after his death even though
they are in my name now?
— Surinder Singh
1. The best way of handling this situation is to file two tax
returns for your father —
i) In the name of your father up to the date of his death
ii) In the name of the estate of your father, until all the
after-death formalities are completed.
2. As and when the money gets transferred to your
account, the returns there from will get taxed in your
hands. The estate of a deceased individual is treated as a
separate person under the law.
3. Regarding the higher rate, we are of the opinion that
the rate was specific to the investor — because he was a senior citizen, he was eligible for the higher rate. You may not
get that same rate even though the deposit per se has been
transferred to you. However, it is best to check with the
bank and get this clarified.
A house built in 1977 was sold in May 2012 for Rs 12.5 mil-
lion ($206,000). The long-term
capital gain was around Rs 5 mil-
lion ($82,000). At that time I
thought I would buy property to
save the tax. A residential plot was
purchased for this purpose for a
cost of around Rs 3 million
($49,000). However, so far no con-
struction has been done on this plot
and now I want to sell this plot and
buy a house from the sale proceeds.
What is the position regarding
exemption already availed under
capital gains. Do I have to pay tax
now? What shall be the position as
regards to the second transaction
— sale of plot and purchase of
— H K Sood
The exemption from tax for the house sold in May 2012 is
available only if you buy or construct a residential property
(house) within the stipulated period. In other words, you
cannot claim any exemption from capital gains tax payable,
since you have purchased only a residential plot. You are
liable to pay tax on the long-term capital gains on the sale
of the house along with interest for late payment.
You will also have to pay tax on short-term capital gains
arising out of sale of the residential plot. Since the plot will
be a short-term asset leading to short-term capital gains,
By way of tax planning, if you have waited so long, if you
could wait till May 2015 to sell the plot, then you could save
the resultant capital gain tax by buying the house. But if
you were to flip the plot of land to buy a house today, then
not only will you have to pay short-term capital gains tax at
31 percent, but as mentioned, buying a house will not provide you with any tax exemption.
I have sold my property in Mumbai and intend to buy a
bigger property in Pune. This would also provide me with
tax exemption (provided, of course, I buy the Pune property
within the time limit of two years). However, due to some
contingent need I have utilized a part of the sale proceeds
from the Mumbai house in a separate venture. Now I have
taken a bank loan to make up for part of the flat cost.
If I prepay some of this loan from my own source within
one year of sale of the old house can I consider the prepay-
ment amount also into my investment in flat?
— Vijay Mathur
If we have understood your query correctly, we think you
may be referring to the fact that there is no one-to-one correspondence between the funds from sale of flat and purchase of new flat. In this regard, note that such one-to-one
correspondence is not required. You are free to apply the
entire sale proceeds anywhere else and purchase the new
flat on a loan. As long as the new flat is purchased (source
of funds is immaterial for the deduction) tax exemption will
As you may have guessed, now there is neither any question nor any requirement of getting a deduction for prepayment of the loan. In any case, repayment or prepayment of
the loan would not have provided you with a tax deduction.
A N SHANBHAG SANDEEP SHANBHAG Readers who wish to ask A N Shanbhag a question can fill in the following details and mail the coupon to: The Business Editor, India Abroad, 42 Broadway, 18th Floor, New York, NY 10004 Or fax it to 212-727 9730
A N Shanbhag is an investment consultant and author of In the Wonderland of Investment; How to Convert a Taxpayer into a Taxsaver; NRI Investment Guide. This article does not constitute tax or legal advice. Consult your tax or legal advisor before making any tax- or legally-related investment decisions. The authors may be contacted at email@example.com
Understanding reinvestment of property sale proceeds
Planning Commission was experiencing, it
left a vital process untouched: preparing the
Here too, many feel its work was not up to
“The Planning Commission was undergoing some changes, but the pace was far too
slow,” says Arun Maira, a former member of
the Planning Commission and one of the
earliest proponents of transforming it.
It was only for the 12th Five-year Plan on -
wards (2012-13 to 2016-17) that the Plann -
ing Commission started involving experts in
its work. But the idea was stoutly resisted by
the people within, who felt this would encro -
ach on their hallowed territories. Most peo-
ple believe this only weakened the intellectu-
al bandwidth of the Planning Commission.
“Two years ago, when we started formulating the 12th Five-year Plan, the targets were
set keeping in mind a five-year perspective.
But, the reality is the world changed in one
year itself, making the entire process redundant,” Maira says.
He adds the idea of a five-year plan should
be replaced by rolling plans or scenario plan-
ning, which he had suggested to the UPA’s
prime minister, Manmohan Singh, in order
to convert the Planning Commission into a
‘Systems Reforms Commission.’
“I am happy that Prime Minister Modi has
recognized the need to completely overhaul
the Planning Commission with a new name,
new soul, new objective and new outlook,”
Maira says. According to him, the need for
Planning Commission-2 had been felt for
long as the current one was not equipped to
handle or enforce any change.
The change, some officials say, will not just
be in the nomenclature — the new body is
expected to be called the National Develop -
ment Reforms Commission — but also in its
composition, functioning and outlook.
The new body, being modeled on the lines
of China’s reform commission, is expected to
comprise three members from the corporate
sector, three sitting or former chief ministers
and also some cabinet ministries. The buzz
is that former Union minister Suresh
Prabhu may head it.
“There are think-tanks like the one talked
about by Prime Minister Modi in countries
like Bangladesh, Pakistan and Nepal, but
none of them has worked. The fear is unless
eligible people are there in the think tank, it
might become just another body of experts
like so many others,” Saxena says.
He argues that the Planning Commission
got a bad name solely because of the quality
of the people it employed.
“The bureaucrats posted in the Planning
Commission thought it as a parking lot,
while the members sometimes were those
who enjoyed clout with the ruling dispensation. If the same thing happens again under
a new nomenclature, I don’t think anything
will change,” he adds.
By arrangement with Business Standard