I am a non-resident Indian who has been living in Dubai for the past six years. I had previously acquired shares of an unlisted Indian company using surplus funds from my NRO account in India. I now wish to gift these shares to my father, who is a resident of India. Will this transfer attract any tax in India?
– Name withheld on request
Under Indian income tax law, a transfer of property between specified relatives (such as between a father and son) qualifies as an exempt transfer and therefore does not trigger capital gains tax for the sender. Such a transfer also does not invoke anti-abuse provisions relating to the receipt of property below its fair market value (FMV), and thus has no tax implications for the receiver either. Therefore, gifting shares to your father will not attract capital gains tax for you, and your father will likewise not incur any tax on receiving the gifted shares, irrespective of their value.
Tax implications will arise only when your father eventually sells the gifted shares. At that point, for the purpose of computing capital gains, his cost of acquisition will be the price you had originally paid for the shares, and not their value on the date of the gift. Also, your holding period will be added to his holding period to determine whether the resultant gains are short-term or long-term.
It is also relevant to note that gifting shares of an unlisted Indian company to your father is permissible under Indian foreign exchange regulations.
I have been living in Canada for many years now. During FY25, I sold a property in India and TDS was deducted on the gross sale value. Later on, I filed my Indian tax return claimed a refund of the excess tax. I have now received the refund along with interest (net of TDS). Is the interest component taxable in India?
– Name withheld on request
Under Indian domestic tax law, interest received on an income tax refund is taxable as ‘income from other sources’ at the applicable slab rate, plus surcharge and cess. However, as a non-resident Indian, you may elect to be governed either by Indian domestic law or by the provisions of the India-Canada Double Taxation Avoidance Agreement (DTAA), whichever is more beneficial.
A refund that is due and payable by the tax authorities constitutes a debt owed to the taxpayer. Consequently, the refund amount qualifies as a debt claim within the meaning of ‘interest’ under Article 11(4) of the India-Canada DTAA. Article 11(3)(a)(i) further provides that interest paid by the government of India to a resident of Canada is exempt from tax in India. This exemption covers interest paid on income tax refunds. As this outcome is more favourable, you may use the DTAA to treat the refund interest as tax-exempt in India.
To claim DTAA benefits, you must obtain a Canadian Tax Residency Certificate and submit Form 10F online before filing your Indian income tax return.
Harshal Bhuta is partner at P. R. Bhuta & Co. Chartered Accountants.
