Q. I am a senior citizen drawing pension. For the past 15 years, I have been investing in tax-saving instruments, mostly in ELSS funds. Kindly clarify:
1) Which investments come under exempt, exempt and exempt, and
2) Under which category do ELSS and SCSS fall under
Also, kindly advise me on investing ₹1,50,000/-U/S80C.
1) Exempt Exempt Exempt (EEE) investments under Section 80C include Public Provident Fund, Employee Provident Fund, Life Insurance, ULIPs and Sukanya Samriddhi Yojana. It is to be noted the conditions as construed in the section and respective investments/instruments are to be followed in order for the aforementioned investments/instruments to be EEE
2) ELSS is not taxable when the total long-term capital gains derived from listed equities, equity-oriented mutual funds and ELSS of an assessee in a year is less than ₹1 lakh.
Such LTCG amounts in excess of ₹1 lakh is taxable. ELSS mutual funds can be Exempt Exempt (EE) or Exempt Taxable (ET) from assessee to assessee based on the gain made during the relevant year.
Interest accruing from SCSS is taxable, however, on maturity the principal portion is not taxable, hence it is Exempt Taxable Exempt (ETE)
3) PPF has a lock-in period of 15 years whereas ELSS mutual funds are linked to the equity markets which are considered to be very volatile.
You may look at investments in SCSS or tax-saving FDs as deposits have a much shorter lock-in period in comparison with PPF. However, the interest is disbursed on a quarterly basis with respect to SCSS. It is to be noted that the interests earned on SCSS and tax- saving FDs are taxable but the initial investment is eligible for a deduction under Section 80C making them ETE.
Q. I used to work in the U.S. between 2011 and 2018. I relocated to India for good in late 2018.
During my stay in the U.S., I had invested in the U.S. stock market.
After my relocation to India, I did not close my positions. I continue to trade in the U.S. stock market and continue to pay capital gain taxes in that country. I pay taxes for the interest earned in India for the amount I transfer from the U.S. to India to meet my expenses here. I file my tax returns both in India and the U.S.
As an Indian, do I have to make any disclosures in India for all my equity holdings in the U.S. stock market ?
Ans. Since you are a Resident Indian, you are required to disclose your foreign assets and incomes in “Schedule FA - Details of Foreign Assets and Income from any source outside India” which is available in ITR-2 and ITR-3.
Under this schedule, you are required to disclose your foreign holdings along with the details sought with respect to Foreign Depository Accounts held (including interest paid/credited), Foreign Custodian Accounts held (including interest paid/credited), Foreign Equity and Debt Interests held(including proceeds from sale/redemption and gross amounts paid/credited), Foreign Cash Value Insurance Contracts or Annuity Contract held, Financial Interest in any Entity held, Immovable Property held outside India, Other Capital Assets held outside India, Accounts in which signing authority is possessed, Details of trusts created under laws outside of India, details of other income derived from any source outside India which is not covered in the aforementioned points.
As a Resident Indian, your global incomes are taxable in India, you are required to disclose the incomes earned outside India appropriately in the ITR, the tax paid thereon (if any) and you are eligible to claim relief under DTAA entered between India and USA for the taxes paid in U.S.
(The writer is a partner, GSS and Associates, Chartered Accountants, Chennai)