No tax on monetary gift to parents

A.N. Shanbhag

Q: I have a small apartment on the outskirts of Mumbai which I have let out for a rent of Rs 11,000 pm. I have no other income in India. Would I have to pay any tax on this income in India? Would the tax be payable if I were to gift the rental income to my retired parents who live in India? Would they have to pay tax on this gifted amount?
— Firoz

A: 1. The tax rates for NRIs are not different from those applicable to Residents. Income up to INR 2,00,000 is not taxable. Since your income from rent would amount to Rs 1,32,000 only, there would be no tax payable on rent in India. Any monetary or non-monetary gifts made to parents are not taxable. There is no limit on the amount that can be gifted as well as the number of times it can be gifted.

Q: As per my knowledge, EPF (Employee Provident Fund) contribution by employer which is less than 12% is not to be included in the employee’s earnings for calculation of income tax. My query is with respect to NPS (New Pension System). I want to know whether the 10% contribution of employer’s share will be taxable as the employee’s income?
— Shantanu

A: Under Section 80CCD, contributions by the employee as well as the employer up to 10% of the salary of the employee (basic+DA) is deductible from his gross total income (which includes the employer’s contribution) within the overall limit of Rs 1 lakh in respect of contributions to schemes covered by Section 80C, 80CCC and 80CCD.

Q: My date of birth is 15.3.53 and I will be 60 in March 2013. From which year I will be able to avail of senior citizen status for income tax purposes. Will it be 2012-13 or 2013-14? The confusion is due to difference in calendar year and financial year and my birth date falls in March.
— Mitra

A: Section 80DDB defines a senior citizen as an individual who is 60 years of age or more at any time during the previous year. Consequently, one can claim the higher basic exemption limit applicable to a senior citizen in the same year even if the birthday was March 31. Even if your birth date falls in March, you will be a senior citizen for the entire FY 12-13 (Assessment Year 13-14).

Q: Are dividends received under arbitrage schemes of mutual funds tax free in the hands of investors?
— Harish

A: Arbitrage funds are normally equity-oriented. However, they are risk free since they take a reverse position to their equity exposure in the derivatives market. However, this depends upon the presence of arbitrage opportunities in the market. Since these funds cannot hold open equity positions, in the absence of arbitrage opportunities, the funds are invested in debt and money market instruments. Therefore, it is possible that in a given period, due to lack of suitable opportunities, the equity exposure of the fund is below 65% thereby making it a non equity-oriented fund. So the answer to your question would be while all dividends received are tax-free in the hands of the investors, if these are received from a non-equity fund, a dividend distribution tax is deductible at source whereas there is no dividend distribution tax payable by equity-oriented fund.

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