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April 17, 2000

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"Can an NRI maintain a PPF account?'

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

Please direct me to a website, if available, which will give me information on the restrictions and tax implications in India of OCB's.

Sudhav

Overseas Corporate Body means an overseas trust, society, partnership firm, company or any corporate body where at least 60 per cent of the ownership is directly or indirectly held by non-resident Indians or foreigners of the Indian origin. The best site to get the information is www.rbi.org.in

I migrated to Canada in November 1997. I have a monthly pension income of less than Rs 5,000. Now, the government has issued orders for deduction of Income Tax at source for the year 1999-2000 & my pension department has asked me to file my return immediately.
I know the amount of pension credited every month to my bank a/c in India but I don't know the break up of my pension such as salary, D.A. HRA, arrears of allowances etc. as the department hasn't issued any slips or pension particulars.
What return am I expected to file? Before what date? Is it enough if I show the net amount of pension paid to me each month according to bank credits?
I saw this year's Central Budget (2000-2001) where the pension and family pension are classified as non-taxable. Does this mean that the pensioners are not expected to file their return for the year 2000- 2001 as they're fully exempt from IT?

Ganesan Venkataraman

Since you have migrated in November 1997 for the current assessment year you are an NRI. Since your earnings are around Rs 5,000 per month, your annual pay packet will be Rs 60,000. Out of this income, you will be eligible for standard deduction of Rs 20,000 (1/3rd of salary or Rs 25,000 whichever is less). In addition you will also be eligible for deduction under section 88 B to the extent of Rs 10,000 or the actual tax liability whichever is less, if you are a senior citizen.
Hence from the foregoing you will not be required to pay any taxes on account of the deductions allowed as per Income Tax Act.

Regarding filing of income tax return, since your income for the financial year exceeds Rs 50,000, you are required to file your return under section 139(1) of the Income Tax Act, 1961. The return has to be filed before the June 30, 2000. The income disclosed should be the gross income before any deductions. This has to be supported by a certificate from the employer in Form 16.

I am a naturalised US citizen (born in India). I have no bank accounts or real estate in my name in India. My parents are in India. I would like to buy them a house. Will any money I send be taxed? The house will be in their names and inherited by my elder brother.

Sanjay Todewale

From the facts given by you, we presume that you enjoy NRI status under the Income Tax Act, 1961. An NRI is liable to tax only on income received or deemed to be received in India or accrued or deemed to accrue and arise in India. If the money sent by you is out of your earning outside India, you are not liable to any tax on the same.

I was in US on a B1 visa for the following period: May 1, 1999 to July 31, 1999 and again from August 14 to November 14, 1999. Once again I came to the US on February 11, 2000 on an H1B visa. I have remitted money in India in wife's account for purchase of a flat. The salary which I earn in India is taxable and I have paid the tax on that, please let me know whether the amount remitted by me in India is taxable or not.

Atish Baisantry

From the dates of your stay outside India given by you, you are a NRI for the financial year 1999-2000 since you have not stayed in India for more than 182 days during the period. An NRI is liable to tax only on income received or deemed to be received in India or accrued or deemed to accrue and arise in India. If the money sent by you is out of your earning outside India, you are not liable to any tax on the same.

I am contributing in 401K as part of retirement benefit in the US. I want to keep the amount till my age becomes 60 in US, because of tax implications. Even though I want to leave US after, say 5 years, can I keep the amount in 401K and withdraw it after 60 ?. Is there any tax implications in India, when I withdraw the money from my 401K?

Prabaharan Dorairajan

The incidence of tax in India is determined by a person's residential status and from its source of income. Your question can be answered only if we have complete information about the same. Moreover, we would also require information about the scheme of 401K that is referred to by you.

I am an NRI planning to return to India this year. I have been in US for past three years. I would like to know that after returning to India can I continue to hold (and how long) and operate my US bank and brokerage accounts ? Am I allowed to hold stocks in US once I am in India? What are the tax consequences in India? I know I will be paying US income taxes on my US income.

Rasiya Manbasiya

NRI's who are returning to India after having stayed outside India for a period of one year are allowed to retain their foreign assets after returning to India. Tax consequence in India will depend upon your residential status. Once you lose your status as an NRI under the Income Tax Act, 1961, you will be liable to tax on all income earned by you globally.

I am an NRI but has not yet opened any NRE account till date. I want to know if I can carry my UK savings in the form of travellers cheques and cash back to India. Also, is there any restriction on amount or days under which it has to be encashed.

Rajnish Singh

The remittance of foreign exchange into India is dealt with by the exchange control regulations. A person is considered as an NRI for this purpose if he has left India with an intention of staying abroad for an indefinite period of time. As per the earlier Foreign Exchange Regulation Act, a person was permitted to bring into India from any place outside India without limit foreign exchange.
Such permission is allowed to persons only if he makes, on arrival in India, a declaration to the Customs authorities in such form as may specified by the RBI in this behalf. Further, such declaration would not be necessary where the aggregate value of the foreign exchange brought in by such person in the form of currency notes, bank notes or traveller's cheques at any one time does not exceed US $ 10,000 or it's equivalent.

I have been in the US since August 1996 but upto March 1998 I was full time student. I am planning to return to India for good in August 2000 and will take a job with Indian company in India on returning. When should I file income tax in Year 2001 for year 2000? Will the income which I earned here in US during April 2000 through August 2000 be counted together with my income which I will earn from Indian company (may be from September 2000- March 2000) after returning. While calculating tax for Year 2000 or do I have to stay here till first week of October 2000 to pass 180 days window.
Also if this income (which I will earn in US from April 2000- August 2000) is taxable, please guide me in calculating tax. What are criteria for 'Resident but not Ordinary Resident' status? and If I fall in that how to declare that I am Resident but Not Ordinary Resident.

Nimish Patgaonkar

For a person to fall within the definition of a 'Resident', he has to satisfy at least on of the following basic conditions:

  • He is in India for a period of 182 days or more during the previous year
  • He is in India for a period of 60 days or more (182 days in case of persons who are on employment abroad returning to India on holidays) during the previous year and 365 days or more during the 4 years preceding the previous year
If a person does not satisfy both the above conditions, he will be a Non-Resident for the purpose of Income Tax Act.

In your case, firstly, you will have to remain outside India at least till September 30, 2000. Secondly, you will have to determine whether you satisfy the second condition which apparently from the information provided, you don't satisfy. Hence you will be treated as a NRI.

For qualifying as a 'Resident and ordinarily Resident' you have to satisfy at least one of the above conditions and both of the following conditions:

  • You are a Resident in 9 out of the 10 preceding previous years and
  • You are in India for at least 730 days during the 7 preceding previous years
If you satisfy either one condition or none of the conditions, then you become 'Resident But Not Ordinarily Resident'. If so, you will be liable to tax on the total income earned by you during the financial year. The declaration as to residential status is a part of the Income tax return.

I have got employee stock options of a company with overseas offices. The company is listed on the BSE. I am an NRI currently residing in US. I want to exercise the options by borrowing money from a broker, sell the shares immediately, repay the broker, and repariate the proceeds to the US.
I am not on a work permit in USA, which means the salary I earned is taxable in USA. My question would be will I have to pay any tax in India to repatriate the amount to USA, If so what will be the percentage and if I l keep the money in India, what will be the percentage of tax be?
The reason behind this is, when I exercised some of my shares listed in BSE (not listed in USA) I paid US federal and state taxes (nearly 36 per cent).

Jaya Lakshmi

A NRI is liable to tax on all incomes arising in India. The rate of tax applicable is 10 per cent if it is a long term capital gain.

I have returned from US to India in April 1999 after staying there for two years (February 1997 to October 1997 and October 1997 to April 1999). Thus I am eligible for 'Not Ordinarily Resident Status'. Do have to pay the Income Tax here for coming and subsequent assesment years on my FCNR Dollar FDs' now-onwards interest generation? I have now converted some of FCNR FDs into RFC (US$ ) FDs upon maturity.
I read in Finance Act 1999 section 10 ( 14 ) ( iv ) ( fa ) that all the interest on RFC / FCNR Dollar accounts is completely tax free for both NRIs as well as for NORs.

Kedar Agarkar

Till the time you maintain the status of Resident Not Ordinary Resident, the interest earned by you is exempt from tax.

Can an NRI open up a PPF account? If yes, are the contributions (the inward remittances in the PPF account) repatriable? Are the earnings (amount earned by contributions in the PPF account) repatriable?

Devesh Rathore

There is no restriction on an NRI opening a PPF Account. However, remittances into the account will be non-repatriable. Hence, interest earned on the balance in the account will also be non-repatriable.

I was a NRI for over 15 years as a doctor working in the Ministry of Health in Oman. I have come back to India for over two years and some of my fixed deposits placed as an NRI under the NRNR scheme have still not matured. I have been recieving the interest quarterly in NRE and NRO accounts and now in ordinary resident accounts. Do I have any tax liabilities on the interests of these deposits?

L K

From the information given by you, your status under the Income Tax Act, 1961 is Not Ordinary Resident (NOR). Interest earned on FCNR, NRNR, RFC and other foreign currency accounts are exempt from tax under section 10 of the Act in case of a NRI and NOR.

I have been residing in USA for past three years and am planning on making some investments here. Can I still keep the money invested in USA, if I returned to India say after five years. If yes, what are the Indian tax implications for the money invested in USA?

Venkat Reddy

NRI's who are returning to India after having stayed outside India for a period of one year are allowed to retain their foreign assets after returning to India. Tax consequence in India will depend upon your residential status. Once you lose your status as a Non- Resident under the Income Tax Act, 1961, you will be liable to tax on all income earned by you globally. Hence income from such investments will also attract tax every year.

Is it still necessary to obtain RBI permission to sell NRI shares obtained through allotment (primary market) and get the money deposited to the NRE a/c. What is the present capital gains tax for NREs?

Monian

You have to obtain RBI permission if the proceeds of the sale of shares have to be deposited in the NRE Account. However, deposit of proceeds of sale of shares into NRO account will not require RBI permission.
The rate of tax on capital gains for NRIs is 10 per cent for long term capital gains.

I am in the US on H1 visa and my daughter is a US citizen. Can I invest money in PPF in India on her name (as I plan to return to India in future)? Can I save money in PPF in India?

H Bathina

There is no restriction on an NRI opening a PPF Account. However, remittances into the account will be non-repatriable.

Send in your questions to perfin@rediff.co.in

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