My daughter, who is married to a non-resident Indian (NRI), will be moving to Luxembourg next month on a dependent visa. We, along with my wife, jointly own a house in Noida. My mutual funds (MFs( and fixed deposits (FDs) list my daughter as a nominee. Upon my demise, will the rental income from the house be taxable for my daughter in India? How will the interest from FDs and capital gains from MFs be taxed? As she plans to work in Luxembourg eventually, will her income from rent, interest, and dividends be subject to taxation in both India and Luxembourg?
—Name withheld on request
Rental income from a jointly owned house is taxable in the hands of the co-owners, in proportion of the investments made by each co-owner towards purchase of the property. On the assumption that your holding in the property will be inherited by your wife and daughter after your death, the rental income shall be taxable in their hands in proportion of their respective the property share (including the inherited portion).
It is assumed that FDs and the MFs (held by you in India), shall be inherited by your daughter post your demise. Thus, any income arising from such investments, shall be taxable in your daughter’s hands. The interest / dividend earned from such FD and MFs, shall be taxable under the head ‘Income from Other Sources’, at applicable tax rates.
As for capital gains (arising on sale of MFs), the taxability and applicable tax rates would be dependent on the type of capital gain (i.e., long-term / short-term depending on the period of holding) and on the nature of asset (i.e., equity or debt). Also, considering that this would be an inherited asset, the period for which the MFs were held by you (i.e., the previous owner) shall also be considered. The cost of acquisition for the purpose of calculating capital gains, shall be the actual cost in your hands
As the rent, interest, dividend, any future capital gains etc. are from India assets, the same would continue to be taxable in India. It may be noted that India has a Double Taxation Avoidance Agreement (DTAA) with Luxembourg, and hence the relevant beneficial provisions under the DTAA to mitigate the double taxation would also merit attention.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
(If you have a personal finance query, write to us at mintmoney@livemint.com to get it answered by experts.)
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Published: 11 Mar 2024, 04:38 PM IST