Can I pay municipal taxes on behalf of my NRI son?

My son resides in the US, whereas I stay in Pune. My son owns two house properties in Pune. Can I pay municipal taxes on his behalf for those properties?

—Name withheld on request

I assume that your son is a non-resident since he resides in the US. According to Foreign Exchange Management Act (Fema) regulations, payments made by a resident on behalf of a non-resident are prohibited unless specifically allowed. Therefore, such payment of taxes on behalf of your son would not be permitted under Fema.

If your son holds a non-resident ordinary (NRO) account in India and if you possess power of attorney to operate such an account, you may instead gift an equivalent sum of money into his NRO account. As the power of attorney holder, you are permitted to make local payments, which include payment of (municipal) taxes in India.

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While such a gift would be exempt in India for your son, it would be subject to tax collected at source (TCS) provisions in your case. If the gift exceeds a sum of ₹7 lakh, TCS will be applied at the rate of 20% on the amount exceeding ₹7 lakh.

I live in the US. I had put in money into a startup during the Covid period because of cheap valuation. Due to some new rule, my shares were recently converted into demat from physical shares. Does conversion of physical shares to demat attract any taxation?

—Name withheld on request

For income to be taxed as capital gains, it must result from the ‘transfer’ of a capital asset. Shares in an unlisted company are undoubtedly considered capital assets. However, a ‘transfer’ occurs inter alia when there is a sale, exchange, relinquishment of an asset or extinguishment of rights in the asset. Conversion of shares from physical form to dematerialized form does not involve sale of unlisted company shares, or exchanging them for another asset, or relinquishment of the shares, or extinguishing rights in the shares. Therefore, this conversion does not constitute a ‘transfer’ of shares and, as a result, does not involve any tax implications.

Harshal Bhuta is a partner at chartered accountancy firm P.R. Bhuta & Co.

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