Interest and dividend income arising in India is taxable in India
Dividend received from a mutual fund registered under the Sebi Act, 1992, is taxable in India
My son is a non-resident. He has interest income from fixed deposits (FDs), dividend from mutual funds, and Public provident Fund (PPF). He has not remitted any money from abroad. All the FDs, PPF, and mutual fund investments are out of the income earned in India before he went abroad. Is the income earned from above taxable? Can he invest Rs1.5 lakh a year to gain exemption under section 80C? Is interest from PPF taxable?
Taxability in India depends on the following factors:
a. Source of income
b. Residential status as per income-tax laws
Typically, source of income lies where the services are performed, or where the asset, from which the income arises, is located. Residential status under the income-tax law is determined by your physical presence in India in the current financial year (FY) (1 April to 31 March) and preceding 10 FYs. Depending on the number of days in India, there can be the following types of residential statuses:
a. resident and ordinarily resident (ROR)
b. resident but not ordinarily resident (RNOR)
c. non-resident (NR)
An individual qualifying as ROR is taxable on global income. An individual qualifying as RNOR is taxable on India-sourced income and income that is derived from a business controlled in or a profession set-up in India. In case of an NR, only India-sourced income (income earned and/or received in India) is taxed.
Your son will qualify as an NR in India for the relevant financial year if either he was present in India for less than 60 days, or:
(a) He is a citizen of India; and
(b) He has left India for the purpose of employment outside India; and
(c) He was physically present in India for less than 182 days during the relevant financial year.
Thus, as an NR, only his India-sourced income will be taxable in India. Accordingly, the interest and dividend income arising in India will be taxable in India. However, the following incomes are specifically exempt from income-tax:
i. interest received from PPF account
ii. dividend received from a mutual fund registered under the Securities and Exchange Board of India Act, 1992
Accordingly, out of the above-mentioned incomes, only the interest earned on fixed deposits in India will be taxable in India. Your son is required to file an income-tax return and pay taxes in India only if his total taxable income exceeds Rs2.5 lakh for the financial year. Also, your son may make investments such as tax-saver fixed deposits, equity-linked savings schemes (ELSS), payment of life insurance premium, and an existing PPF account. NRs can claim these deductions under Section 80C of the Income-tax Act, 1961, subject to a maximum limit of Rs1.5 lakh.
Please note that as an NR, he will not be able to open a fresh PPF account but may continue to contribute in the existing PPF account until maturity.
My father moved to the US in the 1990s. I was 5 years old then. Later, we got citizenship and are no longer citizens of India. Recently, he has inherited some fixed deposits, a rental property and other investments. Does he need to apply for a fresh PAN or can he use the previous one, which he has not used for decades?
Allotment of current series of PAN started in 1995. In case your father has a PAN of the current series allotted after 1995, he may use the same to pay the applicable taxes in India and file the India income-tax return as an individual can be allotted only one PAN. He may apply to get a reprint of the PAN card or changes in correction in personal data with the same PAN.
In case your father has a PAN of the old series that was abandoned in the year 1995, he will be required to apply for a new PAN. Such application can be filed online. You will be required to provide proof of identity, date of birth and address.
Sonu Iyer is tax partner and people advisory services leader, EY India.
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