PPF account opened when one was a resident can be operated after becoming an NRI

Is an NRI allowed to continue investing in a PPF account back home in India during the balance period left for the scheme if someone attains a status of NRI during the PPF scheme period? 2) Is an NRI allowed to extend the PPF account for further period of 5 years after the lapse of the current operation period and keep investing? 3) What are the implications for a PPF account opened for a minor, when a minor attains the age of 18 years during operation of the scheme? 4) If investment by NRIs is allowed, what can be the sources of funding which can be utilised to pay the required subscription and by what mode? How can NRIs operate the PPF account from abroad?

?Kumar

1.Yes. A PPF account opened when the individual was a resident can be operated after becoming a NRI till maturity.

2.However, at the maturity of the PPF, if the individual continues to be an NRI, the account has to be closed. The post-maturity extension facility is not available to such an account.

3.The ex-minor can take over the operations of the PPF account by registering his signature at the accounts office. The guardian will have to attest the signature of the ex-minor.

4.The deduction u/s 80C can be claimed either by the child or his guardian from whose account the contribution is made. The PPF maturity proceeds belong to the minor (or the minor holder who has turned major). The guardian has no right to the same.

5.The contribution to the account can be from any source, including the NRI’s NRE account. The PPF proceeds are non-repatriable.

Recently, I have sold some commercial property and earned long-term capital gains. I intended to invest the sale proceeds into a residential property thereby saving on the capital gains tax. However, recently a CA friend informed me that one of the conditions of claiming exemption is that I should not own another property at the same time. I jointly own the house that I stay in with my wife. Will this factor prevent me from availing of tax deduction?

?P M Satta

In the case of ITO vs Rasiklal N Satra (280ITR243 dt 19.9.05), the assessee sold shares (this was when long-term capital gains earned on shares were taxable) and claimed exemption under Sec 54F by investing the same in the purchase of a residential flat at Vashi, Navi Mumbai. The assessing officer (AO) noticed that the assessee was the co-owner of a flat in Mumbai.

Now, since the assessee already owned an old house, the AO denied him the Sec 54F exemption. To this, the assessee contended that since he co-owned the old house along with his wife (they were joint owners), he was not an independent owner of the house and exemption can be denied only where he was the absolute owner of the house.

It was held that since the legislature has used the word ‘a’ before the words ‘residential house’, it must mean a complete residential house and would not include a shared interest in the house. Where the property is owned by more than one person, it cannot be said that any one of them is the sole owner of the property. In such case, no individual person on his own can sell the entire property. Joint ownership is different from absolute ownership. Ownership of a residential house meant ownership to the exclusion of all others.

Since Satra did not have full ownership of the house, it was held that the he was not the owner of ‘a’ residential house on the date of the sale of the shares. Consequently, the exemption under section 54F could not be denied to him.

After having worked in the UAE for over 20 years, I have now come back to India for good. Though I do not have a regular job, I undertake some freelance assignments, the income from which is taxable. When I was in the UAE, I had made some investments in mutual funds, which I will be liquidating to aid my day-to-day expenses. I am aware that this income would be taxable in India as capital gains. My question is whether I can avail of indexation to compute long-term capital gains and secondly what is the exchange rate that I should use to arrive at the rupee value of capital gains? Also, since my Indian investments are currently at a loss, can I book such loss and set-off the long-term gain from abroad against the domestic short-term loss?

?M N Pavri

As regards the availability of indexation on your foreign investments, note that the same is available as per Sec 2(42A) read with Sec 48 of the Income Tax Act.

Regarding conversion of dollars to rupees, one has to go by the provisions of Rule 115(1). Clause 2(f) of the explanation to this rule clearly states that in respect of income chargeable under the head capital gains, the telegraphic transfer buying rate (of SBI) for the last day of the month immediately preceding the month in which the capital asset is transferred has to be adopted.

With respect to the availability of the set-off of long-term gain against short-term loss, the same is available as per Sec 74 of the Income Tax Act. Note that only taxable long-term gains may be set-off this way, tax-free long-term gain (on domestic shares and equity mutual funds) may not be set-off.

The authors may be contacted at wonderlandconsultants@yahoo.com