Tax queries: Investment in Bitcoins not allowed under LRS scheme
Every week, an expert selected by ET answers queries from our readers on tax.
I have heard a lot about investments in cryptocurrencies like Bitcoins, but my research showed there are no great opportunities to make money. I intend to purchase Bitcoins outside India. Can I remit funds outside India under any scheme of Reserve Bank of India from my bank account in India and purchase Bitcoins offshore?
As per the Liberalized Remittance Scheme (LRS) of Reserve Bank of India, an Indian resident can remit in one financial year (April – March) up to $2,50,000 outside India from his regular bank account in India. The funds transferred under LRS can only be utilized for specified purposes such as purchase of residential house, investment in shares, investments in mutual fund, etc. From the funds remitted under LRS Scheme you cannot make investments to purchase bitcoins outside India.
We are into the business of ready made garments under registered Limited Liability Partnership (LLP). There are three partners — two are working partners and the third partner is a lady who has made investments in the LLP, but is not looking after the day to day affairs of the LLP. The LLP would be paying interest to the partners on the funds introduced @ 15% p.a. as the partners have borrowed funds in their individual capacity and have made investments in the LLP. The LLP would pay remuneration to all the three partners. Can we pay interest and remuneration to the partners?
Section 2(23) of the IT Act,1961 defines the word “firm”. As per the said definition, the firm includes an LLP. In view of this specific definition, the provisions relating to interest and remuneration to partners will be governed by the provisions of Section 40(b) of the Act. As per the Section 40(b) (iv), interest can be paid at the maximum rate 12% p.a. and calculated as per the simple interest method. Any interest paid over and above 12% p.a. will be disallowed in the hands of the LLP while computing the total income and at the same time it will be taxed in the hands of the partners. As per Section 40(b)(v), the remuneration can only be paid to the working partner. There is a prescribed formula based on which the remuneration is to be paid to the working partners. Any remuneration paid to a nonworking partner and also the remuneration paid in excess of the prescribed permissible limit will be disallowed in the hands of LLP while computing the total income and at the same time it will be taxed in the hands of the partners. You are advised to refer to the provision of Section 40(b) to determine the eligible quantum of remuneration and interest which can be paid and which will be allowed as deduction while computing the total income of the LLP.
I sold my land in Delhi on Feb 1, 2018, for Rs 3 crore. I have also sold investment in unlisted shares on Feb 6, 2018, for a total consideration of Rs 1 crore. Can I invest Rs 1 crore in government bonds and save the tax which will be levied on the long-term capital gains earned by me?
As per Section 54EC, an assessee can invest up to Rs 50 lakh in the specified bonds and the same will be considered as deduction while computing the taxable capital gains. If the investments are made before March 31, 2018, the investment will have to made for a period of 3 years and if the investments are made on or after April 1, 2018 then the investment will have to be made for a period of 5 years. You will earn long-term capital gains on transfer of land as well as unlisted shares for AY 2018-19 and you can make investments up to Rs 50 lakh in the specified bonds within six months from the date of transfer of the capital asset to avail the deduction from payment of tax on long term capital gains. If the investment is made on or after April 1, 2018, then the investment will have to be for a period of five years from AY 2019-20. The long-term capital gains earned on transfer of land and building can only be invested in the specified bonds up to Rs 50 lakh.
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