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My son is working in a US firm since Nov 2015.Hence he has completed more than 180 days stay in US. I understand that now he will be treated as Non-resident Indian (NRI) for Income tax purpose. For last year i.e., A.Y. 2016-17, he has already filed IT return as resident Indian. Please enlighten me on following points:
- He has a running PPF a/c. Whether he can continue depositing in this a/c from the balance he has in his SB a/c prior to becoming NRI. Also can he claim deduction under relevant section i.e., 80C?
- He has a running NPS a/c .Can he continue depositing maximum Rs. 50,000/- in this a/c as above from his SB A/c balances and claim deduction under Section 80CCD(1B)?
- He is also investing in Indian Equity market. Can he claim deductions under LT/ST Capital gains on sale of shares which he already owns? Further, can he purchase shares of Indian equities from BSE/NSE from the funds he is already having in his SB a/c before joining US Firm/becoming NRI?
- He has rent income, interest income from bank deposits, Dividend income etc. Will these be taxable as hitherto and at what rate?
- Will he have to file ITR hereafter even if his income is less than minimum taxable? [email@example.com]
- PPF Account:
NRIs are not allowed to open fresh PPF account. If NRI have an existing PPF account, it can be continued & amount can be deposited therein. A resident-turned-NRI is allowed to invest in the account from non-resident ordinary (NRO) or non-resident external (NRE) account. Earlier NRIs were not allowed to make contributions into PPF accounts opened before they became NRIs. However, in 2003, a notification was issued permitting NRIs to continue investing in existing PPF accounts till maturity. Premature withdrawal of PPF account or closure before its due date is permissible only in the case of death. At maturity, NRI have an option to remit the proceeds in the country of residence. It may be noted that NRIs are not allowed to extend their PPF account. So, on maturity, NRI should withdraw the proceeds and should not extend the account even by mistake. In case, post maturity, account remained unattended, it will be considered as “extended without contribution”. In India, Interest on PPF A/c is totally exempt from tax. (However, its taxability in the hands of NRI in the country of their residence depends upon the tax laws of their respective country).
[As far as NRI’s are concerned, it may be noted that most of the deductions under section 80C are also available to NRIs. Deduction towards payments of LIC, PPF, Tuition fees, etc is available to the NRI. However, no deduction is available for investment in NSC, Post Office 5 Year Deposit Scheme, senior Citizen Savings Scheme etc. Further, deductions u/s 80D towards medi–claim policy premium payment, U/s 80E towards interest paid on education loan taken for higher education, U/s 80G towards donation to recognized trust/institution, U/s 80TTA towards Interest on Saving Bank account etc are available to NRI also. However, no deduction u/s 80DD towards maintenance, including medical treatment of a handicapped dependent is available to NRIs. Similarly no deduction u/s 80DDB (towards dependant being a person with a disability) or u/s 80U (for a person with disability) is available to NRI].
Any citizens of India between 18 – 60 years of age, whether resident or non-resident, are eligible to subscribe NPS. In the present specific case, your son can continue depositing Rs. 50,000/- in the NPS A/c to claim deduction under section 80CCD(1B).
- Investment in Shares:
As per RBI mandates, there are certain restrictions for investments in shares India, like NRI cannot hold more than 10% of the total holdings in an Indian listed company (20%, in case of public banks), they cannot trade shares in India on a non-delivery basis, which means they cannot do intra-day trading or short-selling etc. NRIs can invest in Indian stock markets under the portfolio investment scheme (PIS) of the Reserve Bank of India (RBI). Under this scheme, an NRI has to open an NRE/NRO account with an RBI-authorized Indian bank.
As far as the tax treatment of investment in equity market by NRI is concerned, it may be noted that tax liabilities are almost same as that of a resident investor. Long Term Capital Gains [ LTCG ] arising from sale of listed shares or equity schemes of Indian Mutual Funds which are subject to securities transaction tax [ STT ] are totally exempt from tax. Short term capital gains (sale within one year of date of purchase) of listed shares or equity schemes of Indian Mutual Funds which are subject to securities transaction tax is subject to a flat rate of 15% taxation.
- Taxability in India:
India follows a ‘source rule’ basis of taxation, i.e. it taxes all incomes which accruing/ arising from an employment or work done in India. Any income accruing or arising to any individual in India is taxable in India. It is irrespective of the residential status of the person. Since your son is a non resident, none of his income accruing or arising in USA would be taxable in India. The ground rule for non-resident Indian is that income which is earned outside India is not taxable in India. [The residential status of an individual depends upon the physical stay of the person in India. Confusion often prevails whether the person is a resident or non-resident. Reader may refer Tax Talk dated 27.06.2016 to know more about it].
In your specific case, income in the nature of rent, interest from bank deposits etc will be taxable as per the applicable tax slab of an individual. Dividends from equity shares, equity mutual funds and debt mutual funds are exempt in the hands of the share or unit holder.
Income Tax Return must be filed by an NRI when their total Indian income (before any deductions) is more than Rs 2,50,000 (for AY 2016-17). Income Tax Return must be compulsorily filed in the following cases:
a] NRI has short term or long term capital gains from any investments or assets (even when gains are less than Rs 2,50,000/-).
b] To get a tax refund
c] To carry forward losses so they can be adjusted later.
A return need not be filed if income from short term or long term capital gains is the only income the NRI has and TDS has been done on it.[Section 115G of the Income Tax Act-1961 & Circular No.372 Dated 8.12.1983 issued by CBDT]
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