Taxes on Indian investments for the Diaspora
I have come to the United Kingdom April 1 2013 on a visi-
tor’s visa to stay with my children. I will be returning to
India by May or June next year.
In India, I earn a nominal pension and some interest from
fixed deposits in the bank. Since I am in the UK, I will be
unable to file a tax return this year — though now electron-
ic filing is possible in India, my main problem is that all the
information and records are back home in India where
nobody stays at present. What are the implications of filing
the tax return after my return next year?
— P R Shawney
The financial year in India ranges from April to March,
the tax return for which has to be filed by July. For example, for FY 12-13, one has to file the tax return by July 2013.
However, you may file a belated return for the same year
anytime up to March 31, 2015 i.e. two years from the end of
the financial year. Up to one year from the end of the relevant financial year (March 2014 in this case) no penalty is
payable. After the period of one year has expired, there may
be a penalty leviable of Rs 5,000 ($86) for late filing.
I have a property in India, which I will be selling to rein-
vest the amount in another property. Am I supposed to pay
capital gain tax? What is the time frame to do so? In case I
hold the amount for about 6 months for reinvestment,
should I keep it in a fixed deposit?
— Jay Patel
We assume that it is a residential house and that the same
is held for over 3 years. If so, you will earn long term capital gains on selling the same.
On such LTCG, you may take tax exemption under section 54 by purchasing a residential house within 1 year
before or 2 years after the date of sale of the old house.
Alternatively, you may construct a residential house within
3 years after the date.
If the new house is sold within the lock-in period of 3
years, the cost of the new house is to be reduced by the
LTCG exempted from tax of the original asset. And the
resultant profit is treated as short term capital gains of the
The amount which is not invested before the filing of
returns for the year or the statutory last date for filing the
returns, whichever is earlier, is required to be parked in a
Capital Gains Account Scheme with a bank in India. Any
other general fixed deposit will not do for this purpose. Any
withdrawals from this account have to be used for payments related to the purchase of the new property within
the time limits mentioned above.
I am living abroad with my family. My wife has a fixed
deposit in India. It is in Indian rupees. It is a two-year com-
pounding deposit. The total interest earned by these deposit
over two years would Rs 200,000 ($3,500).
Will the bank deduct tax at source from the interest
Does she have to file tax returns? If so, how can she file it
for the previous years?
How will we get the TDS back? What are the procedures
for claiming it back?
We have not furnished any permanent account number to
— Prady Bhat
We assume this is a non-resident ordinary fixed deposit
that you are referring to. As the interest for two years is Rs
200,000, the per annum interest earned would be Rs
100,000 ($1,700). As per Indian tax law, an income up to
Rs 200,000 earned in any financial year is not taxable.
Since the interest earned in a year is below this amount,
your wife has no tax liability in India, provided of course
that she has no other Indian income.
For an NRI, all incomes earned are subject to TDS.
Consequently, the interest figure that you have quoted
must be net of the TDS amount. You can check with the
bank regarding Wthe same and ask them to provide you
with the TDS certificates.
The only way to get back the extra tax deducted is by filing a tax return. Your wife would require a PAN to file the
return. A taxpayer can file a return up to two years from the
end of the financial year. So, the tax return for 12-13 can be
filed till March 2015 and so on.
Also note that refund claims have been known to be
delayed — you may file a return and make a refund claim
but there is no certainty regarding the timing of the refund.
Is there any difference in the tax treatment between a per-
son of Indian origin and an overseas citizenship of India
card holder? I have a PIO card and am wondering if there is
any benefit for opting for the OCI card also?
— Ron Mehta
The OCI is not a status under the law, it is just a facility
provided by the Indian government. As per law, one can
either be a non-resident Indian (a person who is abroad in
relation to India but maintains his Indian citizenship and
passport) or a PIO (a person who is abroad in relation to
India but has taken foreign citizenship and maintains a
non Indian passport).
I have some investments like Life Insurance Corporation,
National Savings Certificate, public provident fund and
mutual funds that I made when I was in India. Now, at the
time of maturity, are the proceeds taxable? My relative in
India tells me that the LIC returns are tax-free. What about
— Subramaniam P M
There is no difference in taxability of these instruments in
the hands of NRIs and residents. The maturity proceeds of
LIC, PPF and equity-based mutual funds are not taxable
whereas the interest on NSC is taxable on accrual basis
every year, during its term.
Note that as an NRI, you can continue post office investments already entered into when you were a resident
Indian. However after maturity, these cannot be renewed
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
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