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NRI: Basic exemption limit cannot be reduced from LTCG

Chartered Accountant

NRI: Basic exemption limit cannot be reduced from LTCG
Query 1]
I am an NRI Sir in AY 2015-16. I am having taxable house property income of Rs. 42,631/- and long term capital gains (LTCG) taxable income at Rs. 10,70,567/-. When form 2 is being filled up, the tax payable is calculated @ 20% on LTCG of Rs. 10,70,567/- at Rs. 2,14,113/- + cess. The basic exemption of Rs. 2,50,000/- is not being given. As per this, the tax would be Rs. 11,13,198/-  less basic exemption Rs. 2,50,000/- i.e., Rs/  8,63,198/- @ 20%. = Rs. 1,72,640/- + 3% cess.  Please guide me as to the correct calculation.  [Ajay Agrawal-]
  1. Long Term Capital Gain (LTCG) is taxable at a special concessional rate irrespective of the applicable individual tax slab of an Individual.
  2. Additionally, benefit of adjusting any taxable capital gain against the room left over in the basic exemption limit is a special concession conferred on to the resident taxpayer only. Government knows the earning of NRI & the concession in the form of reduction of unexhausted basic exemption limit against LTCG is not bestowed on NRI.
  3. Resultantly, NRI cannot reduce the amount of unutilized basic exemption limit from the amount of LTCG.
Query 2]
I'm in Govt. service. I have three properties of my own at Nasik, Pune and Bhopal. Though small flats, they were purchased to reduce tax burden. All the relevant details with query is as under:
1.      Nasik flat- is self occupied purchased in 2007. No loan on this.
2.      Pune flat - purchased in May’2012 is a 28 years old property for 20 lacs and now consideration value is about 28 lacs. Loan cleared in the last year. The property is rented out with annual let out income after all calculations is about Rs. 60,000/-
3.      Bhopal flat - Purchased in Mar’2014. The flat is rented out and the annual let out value is again about Rs. 60,000/-. Total interest component is about 2.85 lacs, EMI Rs. 40,000/- plus.
4.      Actually, plan was to sell off Pune property and buy third/second at Bhopal, but could not sell it off in 2014 since it was attracting STCG. So decision was delayed to this year. 
5.      For tax calculations this year, I am including both the rental incomes and then subtracting the same from Rs. 2.85 lacs to arrive at net negative income of approx Rs. 1.20 lacs.
6.      My queries:
Now that three years are over for Pune property, I want to sell it off. What is my total capital gain?  Whatever sale proceeds are, apart from capital gains / otherwise, Can I repay the loan of third property and bring down the EMI since as per rule one needs to reinvest in property after the sell to avoid LTCG? However, here the property was purchased last year. What does the rule say? I’ll be happy if you throw some light. []
1.      From sale of Pune flat, you would be earning Long Term Capital Gain (LTCG).
  1. LTCG arising on sale of a residential house property could be claimed as exempt u/s 54 of the Income Tax Act-1961. To claim an exemption u/s 54, taxpayers have to invest LTCG in purchase/construction of another house property within a prescribed time frame. The prescribed time periods are as under:
    a] For purchase:
    One year before or two years after the date of sale.
    b] For Constructions:
    Three years from the date of sale.
3.      As discussed above, to save LTCG tax, taxpayer have to invest the amount of LTCG for purchase a house property either one year before or two years after the date of transfer of house property. For construction, the time limit is 3 years from the date of transfer. Since Bhopal flat was purchased by you in March’2014 and condition of “1 year before” is not possible now, LTCG arising out of sale of Pune flat could not be claimed as exempt against Bhopal flat. The repayment of the loan availed for purchase of Bhopal flat out of the sale proceeds of the pune flat now would not serve the purpose of saving LTCG tax. You may have following two easy saving options at your disposal:
a] Claim an exemption u/s 54 as mentioned above or
b] Claim an exemption u/s 54EC by investing the amount of LTCG within a period of 6 months in a specified bonds issued by NHAI / REC. These capital gain tax saving bonds have a lock-in-period of 3 years. In your specific case, you can add the stamp duty as well as registration expenses to the cost of acquisition to arrive at the cost of acquisition. Ignoring it, your indexed cost of acquisition would be Rs. 25.38 Lacs [CII for FY 2012-13 & FY 2015-16 (if you sale the flat in FY 2015-16) are “852” & “1081” respectively]. Further, considering your present sale value of Rs. 28 Lacs as not less than stamp duty valuation & ignoring your transfer expenses like brokerage, legal fees etc, your LTCG would be Rs. 4.98 Lacs. By just investing the amount of Rs. 2.62 Lacs in the bonds as mentioned hereinabove, you could save LTCG tax of 20.60%.
Query 3]
I have done FD of Rs. 1,00,000/- on 16th Dec. 2015. Do I have to show interest accrued from 16th Dec 2015 to 31st March 2015 in the ITR for the AY 15-16? Also, I want to ask that if I give an Unsecured loan to a company upon which I am receiving interest, can I claim deduction u/s 80 TTA for the interest received? Please guide me. []
1.      In your specific case, it is always better to offer the income from 16th Dec’2015 to 31st March’2016 in the ITR for the AY 2015-16. This will be in accordance with the CBDT guidelines on the issue & would also enable to spread over & leverage your income in different financial years.
2.      Deduction up to Rs. 10,000/- under section 80TTA is available only against interest received from Saving Bank Account of bank or post office. Interest received from any other source, be it from FDR, KVP, Deposits or unsecured loans to companies or others, would not be eligible for deduction u/s 80TTA.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at SSRPN & Co, 10, Laxmi Vyankatesh Apartment, C.A. Road, Telephone Exch. Square, Nagpur-440008 or email it at]

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