Investments in India from abroad taxable
I have been residing in the UAE for the past seven years and have non-resident external (NRE) accounts in India. Recently, my family shifted back to India permanently, while I will continue to work in the UAE as an NRI. Given this situation, is it legal if I invest in government investment options such as RBI floating rate bonds, sovereign gold bonds, Sukanya Samriddhi Yojana and Kisan Vikas Patra through my wife’s Indian accounts by transferring funds from my NRE account to her Indian account? Are there limits on transfer of funds from an NRE account to an account in India for investment purposes? What will be the tax implications?
—Name withheld on request
Under the exchange control law, the permissible debits to an NRE account are local disbursements, remittance outside India, transfer to other NRE/ Foreign Currency Non-Resident Account (B) [FCNR(B)] accounts and investments in India. Accordingly, you may transfer funds to your wife’s normal resident account. Your wife can invest in eligible investments in India from her account. Under income tax laws in India, income earned from eligible investments in India will be taxable in your hands in India if these are held in your name. Even if your wife has made the investments from the funds you provided, it will be taxable in your hands owing to clubbing provisions.
My son, an Indian citizen aged 41, has been a member of the employees’ provident fund (EPF) and employees’ pension scheme (EPS) since January 2013 when he was posted to work in Bengaluru from the US. From January 2022, he will be posted in Singapore. Consequently, contributions to EPF and EPS will cease. Can the entire contribution (including the employer’s portion) to EPF and EPS be claimed in this instance?
—Name withheld on request
As per Para 69 of the Employees’ Provident Fund Scheme, 1952, an employee (Indian national) is eligible to withdraw from EPF under the following circumstances: On retirement from service after attaining the age of 55 years; on retirement on account of permanent and total incapacitation; on migration from India for permanent settlement abroad; and on being unemployed in India for more than two months. Similarly, Para 14 of the Employees’ Pension Scheme, 1995, says an employee (Indian national) is eligible to withdraw from EPS if he/she has not rendered service of 10 years or more on the date of cessation of employment. But, the employee will be entitled to withdrawal benefit as per Table D of EPS or may opt to receive scheme certificate. If an employee has rendered service of 10 years or more, he/she will be eligible for monthly pension from EPS. In your son’s case, he may withdraw from EPF and EPS on termination of Indian employment after two months. As he has rendered continuous service of five years or more in India, the withdrawal of accumulated balance up to date of cessation of employment in India won’t be taxable in India.
Sonu Iyer is tax partner and people advisory services leader, EY India.
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