PPF proceeds are tax free even for NRI investors
An NRI can continue to contribute towards PPF in India on a non-repatriation basis till maturity if the PPF account was opened when he/she was resident in India
My parents, who are no more, were NRIs and had a joint non resident (ordinary or NRO account) in India. I was the nominee in the account. I too am a resident of New Zealand. Can I transfer the amount from their account to my NRO account, without any tax on it? If I close their account and withdraw all the money, will there be any TDS?—Surubhi Das
Under the income tax law, tax is payable on any sum of money, specified movable property (like shares, jewellery, etc.) or immovable property received by an individual without consideration, except if the same is received, inter alia, under a Will or by way of inheritance or from a specified relative. Further, under the exchange control law, it is permissible to transfer funds from one NRO account to another NRO account in India.
Accordingly, you may transfer funds from your parents’ NRO account (as nominee) to your NRO account in India. As the transfer would be by way of inheritance, there will not be any tax implications in India. Funds from NRO account up to $1 million per financial year are permitted to be remitted outside India.
Interest income from your parents’ NRO account or your NRO account is taxable in India at the applicable slab rate. However, interest income from NRO savings bank account is eligible for deduction from total income up to ₹10,000 (effective financial year 2018-19, it is ₹50,000 for senior citizens aged 60 years or more for both, interest income on savings account and fixed deposits). However, withholding tax provisions are applicable in case of NRO bank account.
Income tax would be deducted by the bank as TDS on interest income from NRO accounts at 30% (plus applicable surcharge and education cess) if the individual qualifies as a non-resident in India. While TDS will be at 30% (plus applicable surcharge and cess), the interest income will be taxable at slab rates (plus applicable surcharge and cess). However, an individual qualifying as a non-resident may avail relief under India’s Double Tax Avoidance Agreement with the country of which such individual is a tax resident by furnishing a tax residency certificate and other specified particulars. In such a case, TDS and final tax rate may be lower than 30% (plus applicable surcharge and cess).
I had invested in Public Provident Fund (PPF) about 15 years ago when I was a resident Indian. The account is maturing in 2018, but I am an NRI now. If I invest the matured amount in fixed deposits, will it be taxed?—Swapnil
Under the PPF scheme, NRIs are not eligible to open a PPF account. However, they are allowed to contribute towards PPF in India on a non-repatriation basis till maturity of the PPF account that was opened when he/she was resident in India.
On 3 October 2017, a notification was issued by the ministry of finance amending the provisions of the PPF scheme stating that a resident who opened an account under the PPF scheme subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed from the date of change of residential status from resident to non-resident. However, the above amendment notification has been kept in abeyance till further instructions by an Office Order from the ministry of finance in February 2018. Accordingly, an NRI can continue to contribute towards PPF in India on a non-repatriation basis till maturity if the PPF account was opened when he/she was resident in India.
Under the income tax law, any amount received from PPF account is exempt from tax in India, irrespective of the residential status. Once you invest the matured amount in fixed deposits in India maintained in an NRO account, the interest income from such fixed deposits will be taxable in India, subject to any relief under India’s Double Tax Avoidance Agreement with the country in which you may be a tax resident which can be availed by furnishing a tax residency certificate and other specified particulars.
Sonu Iyer is tax partner and people advisory services leader, EY India
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