PPF Account To Be Closed If Account Holder Becomes NRI

New Delhi: Amending rules on small savings schemes like National Savings Certificates (NSC) and Public Provident Fund (PPF), the government has notified that such accounts would be closed prior to maturity in case of holders changing their personal status to become non-resident Indians (NRIs). The amended rules were notified in the official gazette earlier this month. The amendment to the PPF Scheme, 1968, said: “If a resident who opened an account under this scheme, subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes non-resident.”

The interest payable would be up to the date of the account closure, it said.

A separate notification on NSCs said that in case of a similar change of status of the certificate holder before the maturity period, “the certificate will be encashed, or deemed to be encashed on the day he becomes non-resident” and interest will be paid accordingly.

NRIs are not allowed in instruments like the National Savings Certificates, Public Provident Fund, Monthly Income Schemes and other time deposits offered by the Post Office.

Asked to comment in this regard, an investment consultant said that it is unclear why NRIs are not allowed to invest in Post Office schemes.

Last month, the government had retained the interest rate on Public Provident Fund for October-December unchanged at 7.8 per cent, in line with the rates for small savings schemes.

Original Article @: http://businessfortnight.com/ppf-account-to-be-closed-if-account-holder-becomes-nri/



If tax status is no longer NRI, all your income is taxable in India


For tax purposes, I was an non-resident India (NRI) for 6 years (FY 2009-10 to FY 2014-15). Then, I spent most of the last 2 financial years in India. As a result, for tax purposes, I attained not ordinarily resident (NOR) status for two financial years (FY 2015-16 and FY 2016-17) so there was no tax on my overseas salary.

In the current year (FY 2017-18), I started working in Dubai but the company shut down and I and planning to return to India and start working here.

1. I am yet to spend 183 days in Dubai for this financial year (maybe I would be spending around 145 days). What would be the actual count of days that would determine my tax status in India? Would this be 60 days or 182 days? My stay in India was more than 365 days in last 2 financial years and was more than 730 days in last 4 financial years.

2. After returning to India, if my days in India would be spent more than 182 days and I fall in the category of Resident (ROR) then

a. Would this make my Dubai salary taxable in India?

b. Dubai salary is tax-free in Dubai. Does this provide any tax exemption or credit in India as per Double Taxation Avoidance Agreement (DTAA)?

c. How will Indian tax authorities consider the tax-ability or exemption of various components of my Dubai salary?

d. Before returning to India and leaving Dubai, what kind of documents I would need from my Dubai employer and other authorities to prove my overseas salary components and figures for filing tax returns in India next year?

—Name withheld

To find out how your income will be taxed in India, you must first find out your residential status in India as per the Income-tax Act.

You are considered resident in India if you meet any one of the following conditions:

1. You are in India for a period of 182 days or more in the financial year, or

2. You are in India for a period of 60 days or more during the financial year and have been in India for 365 days or more during the immediately 4 preceding financial years.

Since you will be in an Indian employment at the end of the year, hence the condition of 60 days (second condition above) will be applicable to you. You will meet the second condition above.

There are some conditions on the basis of which you may be resident but not ordinarily resident:

1. If you have been an NRI in 9 out of 10 financial years preceding the year, or

2. You have during the 7 financial years preceding the year been in India for a period of 729 days or less.

However, you do not meet any of these conditions. You will be considered an ordinarily resident Indian for tax purposes. If you are ordinarily resident in India, your income earned or received anywhere in the world is taxable in India. Therefore, income earned in Dubai will be taxable in India. Since no tax is paid out of India there is no DTAA benefit available to you. You may claim tax exemptions as per Indian laws on the various components of your salary.

You must ask your employer for pay slips, employment letter to support the payments made to you. You must bring details of any assets owned by you outside India, including any bank accounts. These have to be mandatorily reported by resident Indians.

Archit Gupta is founder and chief executive officer of ClearTax.

Queries and views at mintmoney@livemint.com.


Cash flow in retirement


What rate of return do you get from your bank account? This question triggered a lot of discussion at a recent event. The answer seems to vary a hundredfold. At the low end, people said they were getting 0 .01%. At the high end, some people claimed they were getting nearly 1.00% So for $100,000, people were getting between $10 – $1,000 per year. In many cases, you still have to pay taxes on those paltry earnings.That is pretty hard to live on that if you are retired.

This is not somebody’s problem. It is everybody’s problem, particularly if you are retired.

When you look for a solution, the most common solution seems to be annuities. Annuities claim that they give you between 5-7% per year, for the rest of your life.

That seems pretty wonderful in today’s climate, but there are two problems. First, they are not giving you a return on your money. In many cases, they are taking your money and giving it back to you … in small doses. Say you invest $100,000 in an annuity and you get back $5,000 per year. After 20 years, you have just got your own money back. Then, if you happen to die, your principal of $100,000 is gone and you got nothing more than your own money back.

Of course, if you live another 10 -20 years, you will come out better, but the problem is that the insurance companies have pre-calculated the probability of how long most people will live and then set the annual returns accordingly … in their favor. They call this the law of large numbers.

The second problem is that you may have to pay taxes on some part of the returns that you get.

There are many different types of annuities, but the basic problem with all of them is that you rapidly lose your principal after you annuitize. This is because of their high fees.

Are there any better and safe solutions to the cash flow problems in retirement? Yes, there are. After I retired, I searched a lot. This is what I found:


  1. Laddered bonds. Both corporate and municipal bonds, give better returns, depending on how far out you are willing to go out in time and what your tax bracket is.
  2. Preferred stocks of solid companies.
  3. Dividend-paying stocks of first-rate companies that are currently selling at attractive prices. I like this option for retirement accounts.
  4. Special dividend paying life policies from mutual companies, that can give safe returns starting at 3% and increasing to 5% over time. While the returns are not guaranteed, they have never had a single losing year in the last 50 years and the returns are tax-free. This is one of my favorites.
  5. REITs (real estate investment trusts) that pay good dividends. Their returns have been between 3-5%. The principal goes up and down with market conditions.
  6. Energy pipeline transport companies are selling at attractive prices and are less risky than oil companies.
  7. Selling put options and covered calls. We are teaching classes on how to do this.
  8. Rental real estate, if you are willing to manage it. I am not.

Of all the above options, I have chosen to spread my risk, by investing small amounts in many of them. Of course, some of these options are better for my temperament than others, but I have sold most of my annuities.

I am not a financial advisor, the purpose of these articles is to educate people on investment issues. I cannot tell you what to do, but I am happy to share with you, what I have done to improve my returns.

I believe nobody can live on the returns that the banks are giving. It does not matter if it is 0.01% or 1.0%.


India vs. China: Who will win the race to the future?


India vs China.jpg


India and China have been rivals for over a 1,000 years. In the old days, their rivalry overflowed into the rest of Asia, which was named appropriately as Indochina. Both countries were technology and cultural leaders in the past. They exported both ideas and products to the world.

Just prior to Western dominance, during 1650-1750, India and China contributed over 65% of the global economy. China produced fine silks, porcelain,iron products, tea, gunpowder and many things that were desired by other civilizations. India produced cotton, spices and precious stones. With the rise of the West, both their economies were destroyed. At the low point around 1914, India and China jointly were reduced to about 15% of the global economy.

Now both countries are on the rise again. China has become the second largest economy

(after the USA) and India has become the sixth largest economy. What is interesting to note that the numbers are even more favorable when adjusted for purchasing power parity (PPP). China comes in at No. 1, USA is at No. 2 and India at No. 3. China’s rise is based on the country being the manufacturing powerhouse and India’s success has been based on its lead in computer software and information technology.


Today, China and India are following totally different paths and the race will become even more interesting in the future. China is a centrally planned economy based on Confucian discipline, whereas India is more of a free market economy based on numerous fits and starts.

At the present time, both countries have about the same population of 1.3 billion people each. The average Chinese per capita GDP adjusted for PPP is about two times that of an average person in India. Before this PPP adjustment, the average Chinese GDP per capita is 4.5 times that of a person in India. The average Chinese person is in middle class whereas the average Indian still remains poor.

Moving forward, how these countries employ their resources is going to determine who will take the lead. In the past several decades, China was the fastest growing economy, growing at nearly 10%. While China’s growth has slowed, India has become the fastest growing major economy.

China’s strategy is to use its vast surplus capital to build massive infrastructure projects. An example of this strategy at work is the One Belt, One Road (OBOR) initiative to build a new silk route to spur trade with countries from China to the West. An investment of over 100 billion is expected for this project. These shares are now being trade in the US stock market under the symbol OBOR. They may make an interesting long-term investment.

India’s strategy is to modernize the economy by using its strength in Information technology. The recent demonetization, followed by electronic payments is one example. Another is the introduction of a single GST to simplify movement of goods across the country. Despite the hiccups with the implementation, all these projects are moving the country into the modern electronic era. Also,India also has a much younger labor force, which could be an advantage in the long run.

Who will win the race into the future? Will it be China’s massive capital spending approach or will it be India’s implementation of technology? I believe that neither approach will carry the day. The race will be won by the country that can be the global creative and innovation leader.

From the late 1970’s, China has benefitted from the technology transferred to it by the Western countries in their quest to seek lower manufacturing costs. With rising costs in Japan and the Asian Tiger countries, manufacturing in China was a natural choice. With free technology and great discipline, the Chinese have made enormous prosperity and economic growth.

China is an ethnically homogenous country with a lot of pride about its past prominence. However, China also has cultural barriers against innovation. In the Confucian tradition, the emphasis was on becoming a civil servant, rather than a business person. China had a complex system of examinations to become a civil servant. The apex of success was in rising up the ladder in the State bureaucracy. The question is how can the Chinese move from being a copier of Western technology to become an innovator again.?


India has a giant human resource of technicians and engineers. However, the education system in India is too rigid and does not reward creativity. At a very early age, young people have to make career choices that are hard to change. Often times, these choices are imposed by well-meaning parents without regard to the talents and interests of the individuals. Most parents are risk averse in making career choices for their children. Students get to the top by following the rules and working within the system and not by challenging it. The education system combined by the heterogeneous ethnicity, deprive Indians of the National pride that is essential to be global leaders.There remains a long shadow of the British colonial rule.

The large majority of the computer work performed in India is low-end technical work and not high-end creative work. Also, because of the large period of colonial rule and the heterogeneity of the Indian people, there seems to be a lack of confidence and pride that Indians can lead on the global scene. (China was never subjected to colonial rule the way India was subjugated.)

The Indians, who are fortunate to escape the rigid system in India, seem to quickly develop the pride and confidence to innovate and lead.Their peers in India still lack that confidence. Clearly, the ability and potential are there. Can these be injected at the systemic level?


China or India: the one that can develop internal innovation leadership and not live on external technology handouts will inevitably win the race to the future.



Aadhaar card for NRIs

Demystified: Aadhaar Card for NRIs

Adhaar card.jpg

Despite the very best intentions, sometimes a rule may be implemented that is contradictory or confusing. I believe that the question regarding Aadhaar cards falls in this space.


The purpose of the Aadhaar card is to provide residents of India a Unique Identification Card in order to ensure that welfare services are delivered efficiently and effectively. Originally, the card was granted only to Indian residents, but now it may be granted to NRIs… under certain conditions.

For NRIs to hold an Aadhaar card, they must reside in India for 182 days preceding the application date for the card. This may seem like a small detail, but in fact it can have serious consequences from an income tax perspective.

Basically, the purpose of the Aadhaar card is to give benefits to residents of India and not to people who are not residents. Well, most NRIs will not and should not be qualified as residents of India. That is what it means to be an NRI — Non-Resident Indian.

If that is the current law, then the following things follow.

  1. NRIs can operate NRE and NRO bank accounts in india without a Aadhaar card
  2. Their PAN card will not be blocked if it is not linked to an Aadhaar card.
  3. NRIs who really want an Aadhaar card must be present in India to apply for one. They cannot do so on line.

So why should an NRI want an Aadhaar card, when there are no advantages, but serious disadvantages. Beyond this, it is not even allowed under the current laws, unless you meet the 182-day rule. The main reason is ignorance on the part of the people that you have to deal with in India. They may not understand this exemption for NRIs and insist that you have to have an Aadhaar card before you can make a transaction with them.

Examples may be that they do not give you a water connection, electricity connection or a mobile phone account without an Aadhaar card. This is not anybody’s fault. It is just the confusion that exists at the present time.

Hope this helps dispel some of the mystery surrounding the Aadhaar card rules. Of course, the laws could change in the future, but we will try to keep you informed.


Annuities Exposed


Many questions have been asked about the problem with annuities.


They seem to be a almost sure way of getting a 5% return, which seems wonderful in today’s low-interest environment. Actually, I was sold annuities so well that I had bought annuities with many major insurance companies. This includes Pacific Life, Voya, Jackson National life, John Hancock and Nationwide, to name a few.


The key operative words are that annuities are are sold to customers who do not have the insights to ask the right questions about them. They are marketed as amazing products, with many bells and whistles. The average customer is so overwhelmed by all the marketing hype that they do not know how to ask the right questions.


Here are some key questions that are seldom asked.

1. What are the true costs of an annuity?

Typically, there is about a 5%-plus sales charge and a 3.5%-plus annual fee. All those wonderful riders have fees attached to them. These are pretty hefty fees.

2. Despite great stock market returns, I seldom got much more than the guaranteed rate of 5-6%. Why is that?

I think it is because of high annual fees.

3. When you start taking out the money from the annuity, what is the rate of depletion of your cash value?

This is a vital question that is seldom asked, because this rate is very high, very little cash value is left that goes to your heirs. So the deal is that the normal person puts in money for about 10-plus years. Then he starts to withdraw, normally at the age of 65 or greater. If the withdrawal rate is 5%, most people only get their own money back, before they die.

4. What is the real return from annuities?

We estimate that it is between 1-2% in most cases.

5. What is the rate of decline in cash value of the annuity after the withdrawal begins?

Notional values after 10 years are about double of the original investment. Let us say that the market is giving a 6-7% return, depending on the funds that you have chosen. If the payout is 5% (of the notional value or 10% of the original value) and the  annual costs are  3.5-4%, the rate of decline is very rapid.


Normal experience is that too many things have to go right,for an annuity to be a winning investment. Of course, it helps, if the market does well and you live a very long time. But remember that the insurance company is always the winner. It is called the law of large numbers.


To quote leading financial investment guru Ken Fisher, he has never sold an annuity … and would never sell an annuity. Fisher says that whatever an annuity does for you, there are better ways to accomplish the same things. I agree with Ken Fisher. Once I truly understood annuities, I have sold all my annuities.


If you want a true assessment of your annuities, I am happy to provide you an unbiased opinion.