Only resident Indians can open PPF account

I have been living in the US on H1B work visa for the past two years and before that on student visa for three years. Prior to that I lived and worked in India and had opened a Public Provident Fund (PPF) account. Can I continue contributing to that account now? If so, what will be the tax implications?

—Rajesh Sharma

PPF account can be opened only by an Indian resident. The account is for an initial period of 15 years and can be extended for a period of five years at a time thereafter. However, if an Indian resident after opening a PPF account becomes a non-resident, she can still continue to contribute to the account. The contribution can be made from either a non-resident ordinary (NRO) or a non-resident external (NRE) account. So, you can continue to contribute to the PPF account and get the benefit of deduction under section 80C of the Income-tax Act out of your Indian income. The interest on PPF account would continue to be exempt under the Indian income tax laws. On completion of the period of 15 years, if you are a non-resident you will be unable to extend the PPF account and will need to mandatorily close the account and withdraw the sum.

Though the interest on PPF account is exempt from tax under the Indian tax laws, you may be liable to pay tax in respect thereof in the country of which you are a tax resident under the local tax laws, subject to the provisions of the tax treaty entered into with India.

I work in the UK and plan to send some money to my parents every month. I earn around 40 lakh per year of which I plan to remit 20 lakh to my parents. Will they be taxed? If so, is there any way my parents can reduce or avoid paying this tax? I plan to send the money via money transfer.

—Gayathri Menon

At present, there is no gift tax under the Indian tax laws. Under the Indian income tax laws, gift comprising money exceeding 50,000 are considered as income in the hands of the recipient and are liable to tax as income from other sources.

However, such gifts received from relatives are exempt from tax. Relatives for this purpose include lineal ascendents and descendents and hence the gift received by your parents from you will not be taxed under the Indian tax laws. However, any subsequent income earned on the amount received as gift will be taxed in the hands of your parents in accordance with the regular provisions of the Indian tax laws.

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