I have been living in Germany for 7 years. I want to close my Public Provident Fund (PPF) account and National Savings Certificate (NSC) investments in India and remit the proceeds to Germany. Will there be any tax incidence on this transaction?
As your physical presence is likely to be less than 60 days in India during the relevant financial year, you will most likely qualify as Non Resident in India under the Income-tax law. Further, assuming you have left India for the purpose of employment or for carrying on business or for any other purpose indicating your intention to stay outside India for an uncertain period, you will most likely qualify as Non Resident Indian under the exchange control law.
Public Provident Fund
Non Resident Indians are not eligible to open an account under the PPF Scheme. Prior to 3 October 2017, a Non Resident Indian was allowed to contribute towards PPF in India on a non-repatriation basis till maturity, if the PPF account was opened when she was Resident in India.
As per a recent amendment to the PPF scheme, with effect from 03 October 2017, in case of an individual qualifying as Resident at the time of opening the PPF Account subsequently becomes a Non Resident during the maturity period, the following implications will apply:
(a) PPF account will be deemed to be closed with effect from the day the individual becomes a Non Resident;
(b) Interest with effect from that date will be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually closed.
Thus, as a Non Resident Indian, you are required to change the status of your PPF Account from Resident to Non Resident. Once, the PPF account is designated as Non Resident account, you will not be able to make any fresh contributions and your account will be deemed to be closed.
Practically, as it is a recent amendment, you may check with your bank/Post Office whether it will allow you to close your PPF account or it will be kept till maturity at interest rates applicable to Post Office Savings Account.
If you are able to close the PPF account, under the Income-tax law, any amount received from PPF account is exempt from Income-tax in India.
National Savings Certificates (NSC)
Under the NSC Rules, Non Resident Indians are not eligible to purchase NSCs. Prior to 03 October 2017, a Non Resident Indian was allowed to avail benefits of the NSCs on maturity on a non-repatriation basis if the NSC account was opened when he / she was Resident in India.
As per a recent amendment to the NSC Rules, with effect from 3 October 2017, in case of an individual qualifying as Resident at the time of purchasing NSC subsequently becomes a Non Resident during the maturity period, the following implications will apply:
(a) The NSC will be encashed or deemed to be encashed with effect from the day the individual becomes a Non Resident;
(b) Interest with effect from that date will be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually encashed.
In case the maturity period for the NSC has been completed, you may get the same encashed. If not, you may check with your Bank / Post Office, whether it is eligible to be encashed.
Under the Income-tax law, the interest accrued every year from NSC is liable to tax (i.e., to be included in your taxable income) but the same is also deemed to be reinvested and is eligible for a deduction from the taxable income subject to overall limit of Rs150,000 under Section 80C. The interest earned in the last year of the maturity period is not reinvested and hence, it is completely taxable.
In case your income is subject to double taxation then applicable provisions of the Double Taxation Avoidance Agreement between India and Germany may be analysed to claim any available benefit.
Remittance of proceeds
You may credit the withdrawal proceeds of your PPF account and NSC into your NRO account and then remit the balance in the NRO account to Germany up to a limit of $1 million per financial year subject to appropriate documentation under the exchange control law.
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Sonu Iyer is tax partner and people advisory services leader, EY India.