Tax concerns for PIO returning to India
I am a naturalized United States citizen of Indian Origin. I
inherited an ancestral house in India several years ago. This
has been recently acquired by the government (for a public
works project) and I will be receiving compensation.
1. I have both a Non-Resident Ordinary Rupee and a Non
Resident External account (with Citibank in the US), which
were funded by deposits in dollars in the US. In order to
transfer the net proceeds from this sale in dollars to US can
I deposit this amount into my existing NRO account, or do I
need to open a separate NRO account? To make the transfer, all I need to do is submit a certificate from a chartered
accountant (to the Bank where I have my NRO account)
using the forms 15CA and 15C?
2. The net proceeds to me will include a withholding at
source of 10 percent ‘income tax,’ an additional 10 percent
surcharge on that plus a 3 percent education cess. I assume
benefit. As long as I am an NRI, it is tax free in India, but
when I become tax resident am I to pay tax and submit
returns in India for this foreign income in addition to sub-
mission of tax return to the IRS?
When will I be considered tax resident? Am I to submit
tax returns to the IRS for foreign-source income?
While submitting tax return to the IRS am I to inform
them about income from Indian sources?
In the US, an accountant helps me prepare the tax
returns. In India whom should I contact for getting help for
preparation of tax return for submission to the IRS?
Presently, your status is that of Person of Indian Origin.
Notwithstanding the fact that you eventually plan to stay in
India post retirement, it is important for you to get all your
present savings accounts converted to NRO immediately. It
is illegal for NRIs/PIOs to continue to hold their normal
resident bank accounts.
Once you become resident of India, these accounts may
be converted back to resident savings accounts.
Regarding receipt of pension or social security, the same
can either be deposited either directly in a bank account in
India or if you so desire, you may arrange the deposit of the
income in an US bank and then remit the same to your
bank account in India. Either way is permissible and legal.
As regards your other queries related with the tax provisions existing in the US, kindly get the answers from a consultant in the US, who is also familiar with provisions of
Double Taxation Avoidance Agreements.
that this represents the ‘capital gains tax’ you mention. Am
I right in assuming that there is no additional Indian tax liability? (I do receive the US 1099-INT form from Citibank
for US taxes, if I were to deposit the amount in my Citibank
3. Would it still make sense for me to invest these net proceeds in the ‘bonds’ you mention (National Highway
Authority of India or Rural Electrification Corporation) if I
wanted to keep the money in India for the next three years
and then have it transferred? Would I still be liable for taxes
on any interest generated on these bonds? How do I buy
these bonds? I am told I need to get a DEMAT number? I
have a permanent account number card.
2. The surcharge stands deleted. The tax deducted at
source will be at 10.3 percent. This amount can be adjusted against your total tax liability or claimed as refund in
case you decide to buy the capital gains bonds of
3. It makes a lot of sense to use the bonds to save tax on
capital gains. Though the direct interest rate is poor at 6
percent payable annually and is fully taxable, if you take
into account the fact that on every Rs 100 ($2) invested in
the bonds, you save Rs 20.6 (40 cents) by way of tax, the
IRR works out pretty high. If you do not need the money,
go in for the bonds.
You will also have to furnish an undertaking (addressed
to the income tax office), accompanied by a certificate from
an accountant in a specified format (in duplicate), to the
Reserve Bank of India/AD, who in turn are required to forward a copy to the assessing officer concerned. There has
been a substantial increase in foreign remittances, making
the manual handling and tracking of certificates difficult.
To monitor and track transactions in a timely manner,
Circular 04/2009 dt 29.6.09 has modified the format of
the undertaking (Form 15CA), which is to be filed electronically. The format of the certificate of the accountant
(Form 15CB) has also been modified vide insertion of Rule
37BB through Notification 30/2009 dt 25.3.09
The revised procedure related with remittances being
made to non-resident Indians w.e.f. 1.7.09 is —-
Remitter accesses www.tin-nsdl.com.
Electronically uploads the remittance details in Form
Takes printout of filled Form15CA with system generated acknowledgement number.
* Signs Form 15CA.
* Submits the signed Form to the RBI/AD along with
Form 15CB in duplicate
RBI/AD remits the amount.
Readers who wish to ask A N Shanbhag a question can
fill in the following details and mail the coupon to: The
Business Editor, India Abroad, 42 Broadway, 18th Floor,
New York, NY 10004
Or fax it to 212-727 9730
— S M K
1. Yes, the net sales proceeds have to be credited to your
existing NRO account from which it can be remitted
abroad after following the following procedure. Firstly, you
will have to pay tax on capital gains. Note that since you
have inherited the property, the cost of acquisition will be
the cost to the original holder from whom you have inherited the property.
I have been residing in the US for 10 years and have
obtained Overseas Citizenship of India. When I was Indian
Resident, I had some bank accounts that are still running. I
have not opened any NRE or NRO accounts. I am planning
to retire soon, and have decided to stay permanently in
India. I am entitled to get foreign income from pension and
social security benefit on monthly basis. If I open an NRE
and/or NRO account now, will they be operative when I will
lose my NRI status and become a tax resident?
What is the best way to get this foreign income in Indian
rupees? Should I maintain only my present savings account
in India, or should I arrange a direct deposit in a bank in
India or direct deposit in a bank in the US. Or must I open
an NRO or NRE or both accounts for getting the foreign
incomes in Indian rupees?
Possibly, I am to pay tax and submit tax returns to the
Internal Revenue Service for pension and social security
A N Shanbhag is an investment consultant and author of In the
Wonderland of Investment; How to Convert a Taxpayer into a
Taxsaver; NRI Investment Guide. This article does not constitute
tax or legal advice. Consult your tax or legal advisor before making
any tax- or legally-related investment decisions. The authors may
be contacted at firstname.lastname@example.org
The investment outlook for 2011
David Bianco is bullish on the prospects
for the S&P 500 in 2011. 2010 EPS (
earnings per share) growth has outpaced almost
all expectations and this may lead to a V-shaped recovery in corporate profits.2 US
large cap companies represented in the
S&P 500 are enjoying a boost in sales and
profits due to the strong growth in emerging markets and a stabilization of the
domestic economy.2 Bianco’s target for the
S&P 500 in 2011 is 1400, a significant rise
from the current level of 1250. Our new
earnings estimates for the S&P 500 are $93
in 2011 and $99 in 2012.2
Global equity markets: Our economists
believe the cyclical global bull market will
continue in 2011, driven by the robust
growth in emerging markets with an
expected growth rate of 4.3 percent in both
2011 and 2012.2
1 Bank of America Merrill Lynch. “Investment Strategy:
Tax Package – A Game Changer” 17 December, 2010. 2 Bank of America Merrill Lynch, “The RIC Report: 10