NRIs not eligible to open PPF account

SC Vasudeva

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Q. My son opened a PPF account in the financial year 2009-2010. At that time he was working in an Indian company. In 2015, he was transferred to the USA. Now, he has got the PR. Till financial year 2017-2018, he had some income from the company here from the sale of stocks. Now, he has exhausted all the stock. He has contributed in his PPF account till 2017-2018 and got benefit under Section 80C. Please clarify whether he can continue his PPF account though he has no income in India now.

- SP Sharma

A. According to the Public Provident Fund Scheme, 1968, a person who has become an NRI after the PPF account was opened when he was a resident of India should be closed. The relevant rule provides as under: “Non-resident Indians are not eligible to open an account under the Public Provident Scheme:

Provided that 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 w.e.f the day he becomes a non-resident and interest w.e.f that date shall be paid at  the  rate applicable to the Post Office savings account up to the last day of the month preceding the month in which the  account is actually closed.”

The above proviso was introduced w.e.f. October 3, 2017.

I am informed that there is an office memorandum addressed by the Ministry of Finance, Department of Economic affairs (Budget Division) to the DGM (Banking), RBI, and Deputy Director General (FS), Department of Posts, that the notification by virtue of which the amendment in PPF Scheme, 1968 was made be kept in abeyance till further order in this regard.  According to my opinion, till such time another notification is issued amending the scheme, this office memorandum cannot override the provisions as enshrined in the rules. My opinion is based on interpretation of law which would include the provisions by virtue of which the amendment to rules was made from 3rd October, 2017. Nothing stops the Government to amend the rules with retrospective effect. However, till such time rules are amended by a notification, the existing rules provided in the scheme should prevail.

Q. With regard to capital gains tax on equity shares during the FY 2018-19, please clarify on the following points:

1. I purchased shares in December 2010 @Rs 356 per share (IPO), its value on 31/1/2018 was Rs 242 and sold on 4/4/2018 @Rs 209 per share. For calculating the long-term capital loss (which can be adjusted against long-term capital gains), will the acquisition cost be calculated with indexation? i.e. 356 multiplied by CII for 2018-19 and divided by CII for 2010-11.

2. What are the ingredients to be taken into account for calculating acquisition cost in purchases made from the market? Is it traded price + brokerage + GST + exchange transaction charges + stamp duty + STT?

3. Likewise in ITR2 for short-term capital gain, (and may be for LTCG in case more than Rs 1 lakh for FY 2018-19) for expenditure wholly and exclusively in connection with transfer of shares i.e. on sale, are all these ingredients to be taken into account?

4. For sale of shares, full value of consideration means the traded value of shares. Is it correct?

5. What does cost of improvement without indexation mean as mentioned in deductions under Section 48?

- Prem Sagar

A. a) The acquisition cost in the case cited by you will be calculated without giving the benefit of indexation in view of the provisions of third proviso to Section 48 of the Income-tax Act 1961 (The Act) introduced by the Finance Act, 2018.

b) Acquisition cost for the purchase of shares from market would include all the ingredients listed by you in the query except STT and stamp duty. Normally, stamp duty is paid by the buyer and not by the seller.

c) Expenditure wholly and exclusively incurred in connection with the transfer of shares would include the expenditure which is essential to effect the sale i.e. brokerage, STT etc. As stated in (b) above, STT would not be included in the sale consideration.

d) Full value of consideration in case sale of shares would be the traded value less brokerage, GST and any transaction charges paid to the exchange through which the sale has been effected.

e) Cost of improvement means any expenditure incurred by an assessee for making an addition/ improvement to the capital asset. It would also include the amount incurred to protect the title to the capital asset or to cure such title. In a nutshell, any amount incurred to increase the value of the capital asset will be treated as the cost of improvement. In case of shares, any expenditure incurred to protect or cure the title may be covered within the term cost of improvement.

Q. This refers to a query on division of family pension published in The Tribune dated April 16, 2018. In 2007, my father expired in a road accident on duty. My mother is getting two pensions and paying Rs 8,000 tax even after saving. We are two brothers. My brother is an Australian citizen. Is the division of pension applicable in this case? My mother is aged 67, I am 35 years old and my brother is 39. We both are married. Please clarify.

- Dev Kamal

A. The amount of family pension received by your mother can be divided equally between three legal heirs i.e. your mother, yourself and your brother. This is in accordance with the provisions of the Hindu Succession Act, 1956. My view is also supported by the definition of term family pension contained in Section 57 of the Act which provides that “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death. The family pension, therefore, belongs to the family. Its receipt by your mother would not affect its taxability as the family pension will be taxable to the extent of 1/3 of the amount received in the hands of your mother. In case the share of family pension received by you and your brother is less than the maximum amount up to which tax is not payable by you and your brother, such amount of family pension would not be taxable and you need not file an income-tax return.

(Readers can send their queries at delhi@scvindia.com)