We are overseas citizens of India (OCIs). We currently hold US citizenship and passports. We reside in India since May, 2010. We are planning to stay in India indefinitely. I was wondering if OCIs are allowed to invest through PPF scheme.
While referring to the OCI comparative chart on the ministry of home affairs’ website we could figure out that OCIs will not be allowed to invest in PPF (because they have parity with NRIs...who are not allowed to invest in PPF). — Girish Deshmukh
Though you are OCIs, currently you are no longer NRIs/PIOs in India — your status would be that of a tax resident in India. As tax residents, you can no longer hold NRO/NRE accounts; all your bank accounts should be resident Indian savings bank accounts. PPF rules prohibit NRIs/PIOs from opening fresh accounts.
However, there is no bar on residents to open fresh PPF accounts. Hence you can indeed 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.
We are retired US citizens, persons of Indian origin and have received OCI status. Based on that, we were living in India since December 1, 2009, and did not have to register ourselves at the foreigner’s registration office. We are paying US taxes.
In India, we have NRE and NRO accounts in banks and no other investments. Source deduction of Indian tax is made at 30% from the earned interests of NRO accounts and TDS is issued. We are showing as foreign tax credit on our US tax return.
1. What is our status as we have lived over 180 days in India? We can not be resident Indians as we have foreign passports. Some say it is “resident but not ordinarily resident”.
2. If we have lost our NRI status, do we have to close our NRE and NRO accounts? Axis Bank and SBI say that we do not need to as we are foreigners residing in India.
3. Do we need to file tax return in India despite the fact that tax is deducted at source for bank accounts?
4. Will there be any Indian tax on our social security, pension and bank interests earned in India?
— B P Mukherjee
The residential status of a person has to be determined for a financial year (April-March) and basically, if you are in India for 182 days or more in any financial year, you will be a resident, irrespective of your nationality or citizenship. Now, since you have been in India since December 2009, for FY 2010-11, you will be tax residents of India. For FY 2011-12, you would once again be residents if you end up spending more than 181 days in India.
Resident but not ordinarily resident (RNOR) is a sub-category status under the general umbrella of resident status. You would be eligible for RNOR status if you have been an NRI in nine out of the previous 10 years prior to coming to India or if you have been in India for less than 729 days the past seven years prior to the year of coming to India. You have to once again determine your eligibility for the RNOR status for each financial year as per the criteria just explained. Under the RNOR status, your foreign income remains tax-free just like it is for an NRI.
Whether you are RNOR or not, you are first and foremost residents and as residents you cannot have NRO and NRE accounts — these accounts are meant only for NRIs or PIOs. Hence, you would need to close or redesignate these accounts as resident accounts.
The liability to file a tax return only arises if your taxable income for any financial year is above ¤160,000. This is in spite of the fact that the bank withholds tax. If you find that your final tax liability is lower than the tax withheld, then you may claim a tax refund.
You social security payments would be taxable only in the US, pension would be taxable only in India whereas bank interest would be taxable in both countries. However, you may set off the tax payable in India against the tax payable in the US on the bank interest.
The writer is director, Wonderland Consultants a tax and financial planning firm. He may be contacted at
sandeep.shanbhag @gmail.com
