I am a non-resident Indian (NRI) living in Germany. I have recently sold an immovable property in India and reinvested the sale proceeds (post tax deducted at source) in another residential property as per instructions of my tax consultant to save tax in India. Though the capital gains will not be taxed in India, I will still have to pay capital gains tax in Germany. Since I invested the sale proceeds in a new property in India already, I find myself short on funds to fulfil my tax obligations in Germany. I am considering seeking a temporary loan from my sibling who resides in India to cover the capital gains tax in Germany. However, what will be the potential tax implications for my sibling?
—Name withheld on request
A resident individual is permitted to provide a rupee loan to any of their siblings in their NRO (non-resident ordinary) account under the LRS (Liberalized Remittance Scheme) framework. However, the loan arrangement is subject to certain conditions such as minimum tenure, end use negative list, mode of repayment, etc. One of the conditions also state that the loan amount cannot be remitted outside India.
Additionally, a resident individual is not permitted to lend to any person outside India in foreign exchange. Therefore, unfortunately you won’t be able to receive loan in any manner from your sibling who is a resident in India.
However, you may accept the funds by way of a gift from your sibling. Your sibling can gift the funds to you in your NRO account in India or in your foreign bank account whichever suits you. Either mode of receipt would come under the LRS framework that will be applicable to your sibling.
Also, the transfer of funds would be subject to TCS (tax collected at source) payment in India for your sibling and such TCS can be claimed by your sibling as a credit towards eventual tax liability.
The transaction would not be subject to tax in India for you since gifting between siblings does not attract tax in India.
Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.
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Published: 09 Apr 2024, 05:45 PM IST