Indians working abroad can make PF deposits, if there is no social security pact with that country

As per the latest circular issued by the PF authorities, contributions to the fund are required where the salary is either paid or payable by the Indian employer


I moved to New Zealand for work in May this year. How does India’s social security pact with this country affect my working status here? 

—Koeli Saran

There is no social security agreement between India and New Zealand yet. As per the frequently asked questions issued by the provident fund (PF) authorities, an Indian employee working abroad and contributing to the social security scheme of a country with which India does not have an effective Social Security Agreement, can continue to be a member of PF in India as a domestic Indian employee, if eligible. He will not qualify as an ‘international worker’.

Also, as per the latest circular issued by the PF authorities, contributions to the fund are required where the salary is either paid or payable by the Indian employer. 

If salary is neither paid nor payable out of the books of the Indian employer, then PF contributions are not required. In your case, the PF contributions in India will depend on your employment contract. If you have terminated your employment contract in India, no PF contributions are required.

What is the tax treatment for income generated from selling a property for a person of Indian origin (PIO)? 

—Khushbu Singh

Sale of property situated in India will be taxable in the year of sale of property. Any immovable property held for a period of more than 36 months is classified as long- term capital asset. 

For an ancestral inherited property, the holding period would be calculated from the date of acquisition by the original owner.

In case of a long-term capital asset, taxable capital gain will be sale proceeds less indexed cost of acquisition (i.e., adjusted as per cost of inflation index, or CII) less cost of improvement less cost of transfer (like brokerage). 

In case of a short-term capital asset, taxable capital gain will be sale proceeds less cost of acquisition less cost of improvement less cost of transfer.

Long-term capital gain is taxable at 20% plus surcharge, if applicable, and education cess. Short-term capital gain is taxable at normal slab rates as applicable in your case.

The long-term capital gains can be claimed as exempt from tax to the extent they are re-invested in India in specified bonds (within 6 months) or a residential house in India (to be either purchased within 2 years or constructed within 3 years of transfer of the land). 

There are certain restrictions, however, on the new house bought and the quantum of investment made in bonds.

If the capital gains remain un-invested till the due date of filing of India tax return (i.e., 31 July) for the relevant financial year, you may put the amount of capital gains in a capital gains account scheme with a bank.

This should not be later than the due date of filing your India tax return, and subsequently withdraw this amount for re-investment purposes. 

If the entire amount is not reinvested or not deposited in capital gains account scheme, the remaining portion of the gain will be taxable.

Tax on capital gains (either long-term or short-term) can be either paid by way of advance tax in four instalments—15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March—or before filing of a tax return by way of self-assessment tax along with interest by 31 July.

I had invested in bonds of public sector units (PSUs) through my non-resident external (NRE) account. The bonds have matured now. How should I repatriate the amount and what will be the tax implications? 

—Jayant Parashar

Under the exchange control laws, maturity proceeds of any permissible investment in India, which was originally made from the non-resident external (NRE) account, can be credited to the NRE account. Balances in the NRE account could be freely remitted outside India.

Generally, PSU bonds are tax-free bonds, which are notified by the Government of India. In such a case, the interest earned on such bonds is exempt from tax. As you will receive the amount on maturity and will get back the principal amount, there will be no capital gains.

Sonu Iyer is tax partner & people advisory services leader, EY India.

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