TAX GURU: 'Can NRIs open PPF accounts?'

'When a Resident Indian becomes NRI he will have to close the NPS account when his residency status changes. As an NRI, he can open another NPS account.'

Anil Rego, CEO, Right Horizons, answers your personal income tax queries:

ARUN JAIN: Dear Mr Anil, I read your column with lot of interest. It is really very useful info.

My son and daughter were working in India and contributed for 2 years and 3 years in NPS 1 and 2. My son went to USA for studies and now started working; my daughter too is working in USA after marriage. They both also have PF accounts.

We have so far contributed to all these 3 schemes i.e. NPS1, 2 (aprrox 10K to 20K pa) and 1.5L each to PPF accounts so far. But, there is a doubt now due to their converting into NRI status.

Can they continue contributions to NPS 1, 2 and PPF accounts? They are filing returns so far but with NIL income (there is only a small interest income from their NRO accounts). We cannot even withdraw amount from NPS1.

Look forward to your expert opinion.

Anil Rego: When a Resident Indian becomes NRI he will have to close the NPS account when his residency status changes. As an NRI, he can open another NPS account.

In case of PPF account, an NRI cannot open a new PPF account. But if he had opened a PPF account when he was a resident Indian, he needs to notify the bank regarding his change of status and he can hold that account till its maturity and can keep contributing after status change.

During withdrawal, the credit of this amount happens to one’s NRO account.

Kalim Ansari: I’m working in a private organisation and my monthly salary is Rs.125000/. I have only invested in PPF and I'm paying huge tax. Please suggest any investment where I can invest and save tax.

Anil Rego: Hi Kalim, There are multiple tax saving options you can use.  Following are few of the popular tax saving options available:

You can save tax up to 1.5 lakhs under section 80C by investing in PF, PPF, ELSS, ULIP, Insurance, home loan principal repayment, etc

Investing in NPS helps you to save further of 50k under section 80CCD which is over and above 1.5 lakhs under section 80C.

Section 80D provides income tax deduction on medical insurance premium paid for self and family. You can claim up to 25,000 for premium paid for self, spouse and kids. In case of senior citizens the limit is 50k.

If you have a home loan, you can also claim tax deduction on the interest paid towards home loan. You can claim deduction for up to 2 lakhs for the interest paid.

Further you can claim the contributions made to certain relief funds and charitable institutions under section 80G.

Dip Mitra: I have brought forward LT capital loss (LTCL) amount which can be set-off against the current year's LT capital gain (LTCG) against sale of equities.

The LTCL is in excess of my current year's LTCG. The income tax site is automatically setting off the full LTCG for the current year against my brought forward LTCL.

However, LTCG to the extent of Rs 1 lac is in any case exempt from tax as per section 112A. So the automatic set off of the LTCL against the LTCG should be to the extent of the amount of LTCG in excess of Rs 1 lac. As this facility is not permitted by the current software (I have not been able to locate it), could you please advise me how to proceed in this regard.

Anil Rego: Your issue is arising out of how the particular provision is worded.  As per the provision, tax is payable on long-term capital gains “exceeding one lakh rupees” at the rate of ten per cent. 

RANGARAJ K: Sir, I own one house which I have given in rent. Should I show the rent received in my income tax return, or is the rent exempted since I have only one house.

Anil Rego: You have to show the rental income under income from house property.

To calculate income from house property:

1. Determine gross annual value of the property (since this is let out, this will be the rent collected for the year. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.)
2. The property tax paid can be deducted from the gross annual value (GAV). This is the net annual value (NAV)
3. 30% on NAV is allowed as a deduction from the NAV under Section 24 of the Income Tax Act. No other expenses like repairs can be claimed as tax relief beyond this 30%
4. If you are having any home loan, the interest paid to the same can be deducted under section 24
5. The amount after all these deductions would be your income from house property. This will be taxed at a slab rate applicable to you

After all calculations if the value is negative, then this loss can be adjusted against income from other heads.

Do you have any personal income tax query? Please mail us at getahead@rediff.co.in with the subject line 'Ask Anil' and Anil Rego will answer all your tax queries.

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.

You can find more of Mr Rego's answers here.