A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.

A new Rediff India Abroad feature:

Please refer your article on dual citizenship in India Abroad where you mentioned that one of the benefits of this scheme is 'parity with Non-Resident Indians in respect to all facilities to the latter in economic, financial, and educational fields.' My questions are:

• Are NRIs having dual citizenship eligible for investing in government of India scheme for senior citizens in government post offices where they get 8 per cent return?
• Are income tax laws that apply to Indian citizens also applicable to persons holding dual citizenship?

-- Bhuvenesh Mathur

The answer to your questions are:

• No, dual citizenship seeks to bring Persons of Indian Origin (PIO) on par with NRIs. However, NRIs themselves are not eligible to invest in post office schemes or Government of India Savings Bonds. Hence, just by opting for the dual citizenship facility would not make a person eligible for investments in these instruments.
• The income tax laws currently are just the same. In future, amendments will have to be brought in for restoring parity.

I have been reading your column in India Abroad, and am looking for more information on capital gains tax rates, income tax rates and whether a US citizen, originally from India, would be better off paying taxes in India or in the US, or is there no choice? I was wondering if you have a list of frequently asked questions and their answers posted on the Internet.

--Jivendra Kale

At this particular juncture, I do not have any such site. However, I am planning to have one by the end of March. I have a suggestion. The e-book In the Wonderland of Investments for NRIs by me is available on www.popularprakashan.com.

Coming to your main query, you have no choice. Incomes which are taxable in both the countries are protected by the Double Taxation Avoidance Treaty between the two countries.

I read your article on the above subject in India Abroad. I migrated to the United States in 1972 and am now a US citizen. Will you kindly let me know if the procedure for dual citizenship has been finalized and the forms are available to apply for it? If not, when can I expect to be able to proceed with the formalities? I suppose I will have to obtain the forms from the Indian Embassy. Will you please enlighten me?

-- Manmohan Daga

The scheme was announced on January 7 and it should have taken about a week for details and procedure to be available to the public at large. However, it has been observed that no amendments incorporating the benefits offered by dual citizenship have been brought about so far in the laws such as FEMA (Foreign Exchange Management Act) and ITA (Income Tax Act).

Unless the laws are amended, the policy remains a statement of declaration and nothing else. Hopefully in this year's Budget, changes will be ushered in.

I regularly read with interest your column in India Abroad. I would appreciate if you can answer my following question.

I acquired green card (USA) in 1968. In 1970 I purchased 5 acres of farmland. In 1978 I became a US citizen. Is my owning of farmland legal? If not what would you recommend I should resolve?

-- Vasu Sodhani

You were an NRI while purchasing the farmland and NRIs are prohibited from buying such lands. Yes, it is illegal to hold this land. I suggest you sell it as soon as possible.

I'm retired & a resident of USA since 1998. I have been regularly following your very informative articles in India Abroad. In your article on 'Immovable Property Rights of NRIs' in India Abroad, you say that the lock-in period of three years for the eligibility to repatriate has been removed. Does this mean that the earlier requirement of holding the sale proceeds of a property for ten years has been rolled back from 10 years to three years to zero now?

Also, I acquired a residential apartment in India when I was a Resident Indian i.e. before gaining my Green Card status. I sold it as an Indian citizen residing outside India. The proceeds have gone to my NRO a/c (post-tax). Do I need to wait for ten years to repatriate the proceeds?

-- Dr. Nalin Merchant

There is no lock-in now for the eligibility to repatriate in the case of houses purchased out of forex.

As for your second question, your holding period from the date of the acquisition of the residential apartment should be 10 years. This period includes the period for which you have held the sale proceeds in an account where the money lying therein can be traced to the sale. In the case of a property which is inherited or received as a gift by you, the clock starts from the date of acquisition of the original holder.

I am an NRI holding an Indian passport and a resident of US (green card holder) for over three years now, after retiring from the Government of India. I am a regular reader of your articles in India Abroad. I am little confused about the interpretation of DTAA regarding the payment of tax on pension drawn in India and seek your clarification:

• In your article you have mentioned that in the case of Indians who worked in US and settled in India after retirement, the pension drawn by them from US is taxable in the country of residence i.e. India. The corollary should be applicable in the case of Indians who worked and draw pension in India but residing in the US after retirement. i.e. the tax on the pension shall be paid in India. However, in your article dated January 28, 2005 you have answered that in the case of a resident/citizen of the USA. The pension received in India will be taxable only in the US according to DTAA.
• In the list of relatives who fall under Sec. 56(v) for exemptions of gift tax, the name of son and daughter are not mentioned. Do they fall under '(v) any lineal ascendant or descendant of the individual' for exemption under gift tax. 

-- Raghav

1. Pension received by a resident of the US from India would be taxed only in the US. On the other hand, pension received by a resident of India from US sources will be taxed only in India. This is what I have mentioned in the article. Kindly let me know where the confusion lies.

2. Yes. Son and daughter are included in the lineal ascendant or descendant clause.

Also Read:

• NRIs can buy life insurance policy in India
• Dual Citizenship Act silent on Indian pensions

The authors may be contacted at wonderlandconsultants@yahoo.com