India investment tips for the Diaspora
I live in the United States and have lately started investing
in India. However, I am not very clear about the tax incidence on various investments. Can you elaborate on Indian
taxation on bank interest? Similarly, what is the tax position
with respect to mutual funds and investments in property?
Once tax is paid in India, will I be liable to pay tax here also?
1. The interest on the non-resident ordinary account is
taxable and also subject to tax deducted at source at 30.9
2. In the case of mutual funds, tax depends upon whether
the mutual fund is equity oriented or not. Equity-oriented
mutual funds are those where the investments are 65 percent or more in domestic equity shares. Long-term capital
gains on equity-oriented mutual funds are tax-free whereas short-term capital gains are taxable at the rate of 15 percent.
For non-equity oriented mutual funds, long-term capital
gains are taxable at 20 percent after reducing indexed cost
or at 10 percent after reducing actual cost without indexa-tion, whichever is lower.
Long-term capital gain will arise if the holding period is
over 12 months, else the gain is short-term in nature.
All dividends from mutual funds are tax-free. However,
there is a dividend distribution tax of 25 percent applicable
on dividends distributed by non-equity oriented mutual
3. For property to qualify as a long-term asset, the holding period has to be over 36 months. On long-term gains
from property, the tax rate would be at 20 percent after
reducing indexed cost from the sale proceeds. The option of
10 percent (as is available in the case of non-equity MFs) is
Note that just as global income of a resident Indian is taxable in India (with Double Taxation Avoidance Agreement
relief), the global income of a non-resident Indian may be
taxable in his host country.
Legally, we can answer queries pertaining only to Indian
tax laws and regulations. We cannot comment upon the
taxability in any other country or jurisdiction. Kindly get
this information from a consultant specializing in tax laws
of your host country.
Recently, in one of your answers to a query you mentioned
that a gift of Rs 50,000 ($864) or less to an Indian citizen is
tax free for the recipient in India. Is it per year or one time
in a recipient’s life? Also, if the gifts of Rs 50,000 or less
were given to many family members of the recipient, say to
his wife and his children, is that counted as income for him?
The Rs 50,000 limit has to be applied per financial year
(April-March) and not for the lifetime. By way of a background on this, any gifts received in excess of Rs 50,000
(received without consideration or for inadequate consideration) is to be taken as income of the recipient and
charged to tax accordingly only if the donor of the gift is not
a relative of the recipient.
In other words, gifts received from relatives are tax-free
irrespective of the amount of the gift. Also, for taxable gifts
(received from non-relatives), if the gift is above Rs 50,000,
it is the entire amount that will be taxed and not only the
incremental one above Rs 50,000. For example, if the gift
is say Rs 60,000, then the entire Rs 60,000 will be taxable
and not only the marginal Rs 10,000 over and above the Rs
Brother or sister
Brother or sister of spouse
Brother or sister of either parents
Any lineal ascendant or descendant
Any lineal ascendant or descendant of the spouse.
Spouse of the persons referred in clauses (ii) to (vi).”
Can an NRI give Form 15G/H to a bank so that bank does
not deduct tax on interest on his deposits? If the bank
deducts tax then what will be the best option for the NRI?
Form 15G is meant for non-seniors whereas Form 15H is
meant to be used by a senior citizen (65 years or more of
age). If this form is submitted by the deposit holder in
respect of his deposit, the bank does not deduct tax while
paying interest. There are some conditions, which if the
deposit holder complies with, these forms can be submitted.
However, both the concept of a senior citizen as well as
submission of these forms is not applicable in case of NRIs.
In other words, NRIs irrespective of their age are not eligible to file Form 15G or 15H as the case may be.
Consequently, it often so happens that the bank with-
holds tax (applies TDS) even if the overall income of the
NRI depositor is lesser than the basic exemption limit for
taxation of Rs 200,000 ($3,450). In this situation the best
course of action would be to file the tax returns and claim a
refund of the extra amount of tax deducted. Note that a
Permanent Account Number is mandatory in order to file
My query is regarding insurance. Can an NRI (now a US
citizen), invest in Indian insurance plans since his family
continues to reside in India?
— C Sinha
Yes, an NRI or a person of Indian origin (an NRI with
foreign citizenship) has been granted general permission to
invest in any insurance plan in India irrespective of
whether his family resides in India or not. As per the current tax policy, the premium paid during the financial year
is eligible for a tax deduction up to Rs 100,000 ($1,700).
The maturity proceeds (if the plan is other than term insurance where there is no maturity value) are fully tax-free and
can be remitted abroad with a ceiling of Rs 1 million
($17,300) per financial year (Apr-Mar).
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 firstname.lastname@example.org
An Air India
takes off for a
during the 50th
Paris Air Show
at the Le
the week that was
tions on Etihad’s rights to nominate three
directors on the board and, despite being a
minority shareholder in the company,
decide on the vice chairman.
PASCAL ROSSIGNOL/REU TERS
Jet-Etihad deal hits air
Jet Airways’ Rs 2,058-crore ($350 mil-
lion) deal to sell 24 percent stake to Etihad
Airways has hit an air pocket, with the
Indian ministry of civil aviation raising
objections to the proposal of the West Asian
carrier to relocate a few business depart-
ments to Abu Dhabi. Moreover, the min-
istry of corporate affairs has raised ques-
Jet Air business class
seats designed in garage