When the Indian income tax department comes knocking
We are overseas citizens of India. We hold United States citizenship. We have been residing in India since May, 2010.
We are planning to stay there indefinitely. Are OCIs are
allowed to invest through the public provident fund PPF
scheme? While I was referring to the OCI comparative
chart on the ministry of home affairs Web site we figured
that OCIs are not be allowed to invest in PPF because they
have parity with non-resident Indians, who are not allowed
to invest in PPF.
Though you are OCIs, currently you are no longer
NRIs/persons of Indian origin in India. Your status would
be that of a tax resident in India. As tax residents, you can
no longer hold non-resident ordinary/non-resident external accounts. All your bank accounts should be resident
Indian savings bank accounts. PPF rules prohibit
NRIs/PIOs from opening fresh accounts. There is no bar
on residents to open fresh PPF accounts. Hence, you can
invest in PPF. Even if you were to become NRIs/PIOs again
during the currency of the PPF term (15 years), the rules
allow NRIs to operate accounts opened when their status
was resident Indian.
Who is called a NRI?
a) Any person who is employed/having a business in for-
eign country and stays out of India for more than 180 days.
b) What about parents who visit/stay with their children
employed in foreign country and are senior citizens? If they
stay with the children and are out of the country for more
than 180 days, although they are dependent on their children for the duration of stay, would they be termed as NRIs?
—Lt Cdr(Retd) Bal Ram
A Resident is one who during a Financial Year, from April
to March, satisfies any one of the following basic conditions. He / She is in India for at least:
182 days in the FY OR
365 days out of the preceding 4 FYs AND 60 days in the
The stay in India need not be continuous. Most persons
going abroad for an employment for the first time will have
the status of resident since they will be covered by the ‘b’
clause above. Therefore, if an Indian citizen leaves India in
any year for the purpose of employment, or as a member of
the crew of an Indian ship, the 60 days in the clause ‘b’
above is to be replaced by 182 days.
A person who is not a resident is an NRI. As per the
above definition, you will observe that a person who is
abroad (vis-à-vis India) for employment/business will be a
resident only if he stays in India for 182 days or more. Else
such a person will be an NRI.
However, in case of say parents who visit their children,
as they aren’t abroad on employment or business, clause
(b) above would be applicable to them. Therefore, only if
they do not satisfy the conditions laid out therein, will they
be termed as NRIs.
Recently I wished to invest some money in an Indian
mutual fund. The bank there is asking me to comply with
the Know Your Client requirements. How do we go about if
from outside India? Is this applicable to NRIs?
The Indian regulator (the Securities and Exchange Board
of India) requires all investors in mutual funds, including
NRIs, to submit some documents over and above the permanent account number card. There is a specific form that
needs to be filled. You need to affix a photo and sign across
it. For the identity proof, a copy of your PAN card needs to
be provided. For address proof, a copy of your bank statement or driver’s license will suffice. These documents have
to be submitted to the mutual fund or their designated
Points of Service post, with which you would have complied
with the KYC requirements. If you are investing through
the bank, the bank executives will help you in processing
the KYC requirements.
Over the past few years, I have been investing in Indian
mutual funds and have built up a capital of around Rs 5 mil-
lion ($112,800). Now I have received a letter from the
income tax office requiring me to explain the source of the
funds invested along with the documentary evidence, if any.
As an NRI do I have to show source of my income to the
income tax department?
The Indian income tax department has started issuing
such letters to many investors on the basis of Annual
Information Returns required to be provided by organizations like mutual funds in respect of some stipulated transactions. Do not worry. All that you have to do is to submit
the photocopies of your bank statements to prove that the
funds used for investment originated from your income
abroad, which is not taxable in India since you are an NRI.
This exercise is more to do with anti-money laundering
measures taken up by the tax department and it is just to
ensure that the funds brought into the country are from
legitimate sources and not tainted. If your India income
(less exemptions and permissible deductions) is less than
Rs 160,000 ($3,600) in a financial year, you do not have to
file tax returns. If the value of your investment has gone up,
it does not mean you have earned any profit unless you
have encashed the same.
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
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 email@example.com
the week that was
been granted permission till date and 31
are awaiting permission. The FM Phase-III will ensure availability of 806 radio
stations in 283 cities.
Air India plans major hub
TCS to hire 6,000 over-
seas, apply for 1,500 H1-Bs
Virtually ruling out plans to develop a
global hub in Europe, Air India has decid-
ed to create a major operations center in
Dubai for the huge traffic demand from
the United Arab Emirates. Air India had
started hub operations in Frankfurt,
Germany, which was closed down a few
Tata Consultancy Services expects to hire
6,000 employees overseas, which is 10
percent of the total 60,000 people it plans
to recruit this financial year. The
announcement comes in the wake of out-sourcing and the ensuing flight of jobs to
cheap-labor countries like India becoming
a contentious issue in the developed
world. Non-Indians constitute 6.95 percent of TCS’s total employee strength of
over 198,000. The company said it will
apply for 1,500 H1-B visas for 2011-2012,
which indicates it is winning new deals.
based company, reported a 20 percent
drop in net income. Overall, worldwide
snacks volumes grew 3 percent, while beverage volumes increased 12 percent,
India, China boost
PepsiCo Inc’s West Asian, Indian and
Chinese markets grew snack volumes in
strong double digits in the quarter ended
March 2011 even as Purchase, a New York-
India Inc’s biz confidence
level sinks: Survey
Corporate India’s confidence level in
doing business declined in the April-June
period to its lowest level in six quarters
due to rising prices and global uncertain-
ties, the latest National Council of Applied
Worldwide Index of Business Confidence
said. The business confidence index at
145.3 points is 8 percent lower than the
158.5 points reported over January-March.
Indian trade team in US to
study food storage
A 12-member Indian trade delegation,
supported by the United States Trade and
Development Agency, is traveling through
America to learn about modern cold chain
technologies and US practices and stan-
dards. The trade mission has been sup-
ported by the USTDA in response to
President Barack Obama’s call for
increased cooperation in agriculture dur-
ing his trip to India in November last year.
Honda to cut production
in India by half
Auto major Honda Motor Co Ltd has
said it will cut production in India by 50
percent from May due to components sup-
ply constraints after the devastating earth-
quake and tsunami in Japan.