Latest news with #P.R.Bhuta&Co
Mint
2 days ago
- Business
- Mint
What happens if you use crypto to fund a foreign company?
I'm a resident Indian and I want to incorporate a company in Dubai to provide fintech advisory services in UAE. The consultant there has told me that I can incorporate a company in free zone simply by transferring crypto-currency as share capital. What are the tax implications and risks of carrying out such a transaction? Incorporating a company outside India, like in a UAE free zone, does not by itself lead to any direct tax implication in India. However, when the capital contribution is made using cryptocurrency, things change. Under Indian tax law, cryptocurrencies are treated as virtual digital assets (VDAs). So, if you use crypto to subscribe to shares in a foreign company, it qualifies as a transfer of a VDA—which is a taxable event in India. Such transfers attract a flat 30% tax (plus applicable surcharge and cess) on any gains made. Deductions are strictly limited—only the original cost of acquisition can be claimed. No other costs like exchange or transaction fees are allowed. Moreover, if the transaction results in a loss, that loss cannot be set off against other income, nor can it be carried forward. In effect, the loss becomes permanently disallowed for tax purposes. These transactions must be reported under Schedule VDA of your Indian income tax return (ITR). Additionally, since you are acquiring shares in a foreign company, this investment must also be disclosed under Schedule FA (Foreign Assets) in your ITR. Beyond taxation, there are foreign exchange law implications. Under India's FEMA (Foreign Exchange Management Act) rules, making capital contributions to a foreign company using crypto is not permitted. Even if UAE allows it, doing so from India could mean violating FEMA—potentially leading to penalties and enforcement actions. In summary, while it may seem straightforward to invest in a Dubai company using cryptocurrency, Indian law imposes significant restrictions on such transactions. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
24-06-2025
- Business
- Mint
Will an Indian beneficiary of a foreign trust face tax liability here?
—Name withheld on request I assume that you qualify as a non-resident under the provisions of the Income Tax Act, 1961 (ITA) and that the trust you intend to establish in the US will be a non-grantor trust. As a non-resident, transferring foreign assets into a foreign trust will not trigger any tax liability for you in India. Additionally, since the trust will be set up solely for the benefit of your children, one of whom is a tax resident of India, this transfer will not be considered a taxable event for the trust, even with respect to the share pertaining to your Indian resident son. Under the ITA, trustees of a private trust act as representative assessees. For specific trusts, trustees are typically assessed in their own names for income explicitly earmarked for the beneficiaries. Tax on any income earned by the trust is levied 'in the like manner and to the same extent' as it would be on the beneficiaries directly. However, when the shares of the beneficiaries are known, the income may be taxed either in the hands of the trustees (as representative assesses) or directly in the hands of the beneficiaries. In your case, the share of rental income attributable to your Indian resident son as a beneficiary will be taxable in India, either in the hands of the trustee or directly in his hands. Your non-resident son will not be liable to tax on his share of foreign rental income in India. As the settlor, you will also not have any tax liability in India on this income, as the trust will be an irrevocable trust. Although the ITA does not expressly exempt the eventual distribution of trust assets to your Indian-resident son from tax, you may rely on judicial precedents to take such a position. Your non-resident son will not be liable to tax in India upon trust distribution too. As a beneficiary, your Indian resident son will be required to disclose the details of the foreign trust in his Indian income tax return under Schedule FA (Foreign Assets). Any taxes withheld/paid in the US on the rental income can be claimed in India while filing ITR, subject to filing Form 67. Considering the legal uncertainty under India's foreign exchange law regarding cross-border trusts, it is advisable to seek professional advice before setting up such a trust with an Indian resident as one of the beneficiaries. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
17-06-2025
- Business
- Mint
What are the Indian tax rules for NRIs selling bonds?
I have been a non-resident Indian (NRI) residing in Australia since 2010. In February 2013, I invested in a listed HUDCO bond with a tenure of 15 years. I am now considering selling this bond before its maturity. What would be the tax implications in India arising from the early sale of this bond? If you sell your HUDCO bond before its maturity, the profit will attract capital gains tax in India. Under Indian tax law, the holding period determines the nature of capital gains. For listed bonds, a holding period of more than 12 months qualifies the profit as long-term capital gains (LTCG). Since you've held the HUDCO bond for over 12 years, your gains will be treated as LTCG and taxed at 12.5% plus applicable surcharge and cess. Note that indexation benefit is not available. The India-Australia Double Taxation Avoidance Agreement (DTAA) provides clarity. Article 13(6) of the DTAA, which acts as a residuary clause, applies in your case since gains from bond sales aren't covered under specific clauses. This residuary clause states that in cases not specifically addressed in clauses 1 to 5 of Article 13, the domestic law of each contracting state shall apply. This means that both countries—India and Australia—can tax the capital gains, based on their domestic laws. So while you will be taxed in India, you may also have to report the income in Australia. However, Australia allows you to claim a foreign tax credit for the taxes paid in India. This ensures you're not taxed twice on the same income. You must file an income tax return in India declaring the capital gains and pay any tax balance after TDS (if applicable). You can then use the Indian tax paid as a credit when filing your Australian tax return. Please consult a qualified tax advisor in both India and Australia to account for any recent legal changes or individual circumstances. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
09-06-2025
- Business
- Mint
How is foreign rental income taxed in India?
I have been living in Australia and bought a new house in 2023 through a mortgage. I plan to return to India permanently by December 2025. After relocating, I intend to rent out the Australian property and continue servicing the mortgage using the rental income. Will this rental income be taxed in India? Can I claim a deduction for the mortgage interest? —Name withheld on request Depending on your stay in India over the preceding years, you may qualify as a Resident but Not Ordinarily Resident (RNOR) under Indian tax law. Individuals with RNOR status are not liable to pay tax in India on foreign income, unless it is derived from a business controlled or a profession set up in India. In your case, the rental income from the Australian property qualifies as foreign-sourced, since it originates from an immovable asset located outside India. Therefore, for the financial years in which you qualify as RNOR, this income will not be taxable in India. However, once your status changes to Resident and Ordinarily Resident (ROR), your global income becomes taxable in India. At that point, the rental income from your Australian property will be taxed under the head "Income from House Property" in your Indian income tax return. You will be eligible to claim a deduction on the mortgage interest paid against this rental income. Indian tax regulations do not prohibit claiming a deduction for interest on foreign loans unless the interest itself is taxable in India on which no tax has been withheld at source and where the interest payer is a non-resident. Interest is considered to be taxable in India if it is received or deemed to be received in India, or if it is seen as accruing/arising or deemed to accrue/arise in India. 'Accrual' denotes a legal right to receive income. In your situation, since the mortgage was availed outside India for a property located abroad, and the interest is neither received in India nor deemed to accrue/arise in India, it will not trigger taxability in India. Therefore, the interest can be safely deducted from your rental income under Indian tax law once you become a ROR. From a foreign exchange management (FEMA) standpoint as well, there is no requirement to repatriate rental income earned from overseas property to India. Using this rental income to service your mortgage abroad is permissible under current FEMA guidelines. Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Mint
02-06-2025
- Business
- Mint
Does an NRI providing consultancy to Indian firms need to file income tax return?
-Name withheld on request As a non-resident providing consultancy services related to China market entry to Indian companies, if your only source of income from India is consultancy fees and the full tax liability has been met through the appropriate TDS in India, then you are not obligated to file an income tax return in India. This applies only if Indian companies deduct TDS at the applicable domestic tax rate of 20% (plus any surcharge and cess), without considering the provisions of the DTAA. However, if you intend to claim the benefits under the India-Hong Kong DTAA, whereunder such consultancy income may not be taxable in India due to the absence of a fixed base or physical presence in India for providing the services, then you will need to file an income tax return in India if your income exceeds the basic exemption limit. To avail the DTAA benefits, you must obtain a Tax Residency Certificate (TRC) from the Hong Kong tax authorities and submit Form 10F along with other necessary documents. -Name withheld on request Under the Indian income tax provisions, self-occupied property is a concept which refers to house properties that are typically occupied by the owners for residential purpose and therefore, the annual value of such property is considered as 'nil' and not chargeable to tax. This benefit is available on two such house properties. Prior to the Finance Act, 2025, this benefit was available only if the property was actually used by the owner as their residence or if the owner was unable to occupy it due to employment, business, or profession being carried out at another location, and the owner resided at the other location. However, following the 2025 amendment, the requirement to justify the non-occupation due to employment, business, or profession has been removed. Now, a taxpayer, including an NRI residing abroad, can claim the annual value as 'Nil' for up to two properties, regardless of the reason for non-occupation. Accordingly, in your case, you may treat both the houses, where your parents reside, and the second vacant property as self-occupied in your Indian income tax return. Therefore, the annual value of both properties will be considered 'Nil', resulting in no taxable income under the head 'Income from House Property'. However, if you acquire a third property, one of the three will be deemed to be let out, and a notional rental income (based on expected rent) will become taxable in India. Harshal Bhuta, partner, P. R. Bhuta & Co. CAs
