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Home > Business > Guest Column > A N Shanbhag and Sandeep Shanbhag

Dual Citizenship Act silent on Indian pensions

August 30, 2006

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

A new Rediff India Abroad feature:

I recently migrated to the United States to live with my children though I have had a green card since 1998. I am getting my husband's family pension and my own pension of 20 years of service which together is the only source of income for me.

I am planning to take US citizenship as and when I become eligible. Once I get US citizenship I plan to take India's dual citizenship too so that I can go and live in the home country as and when the need arises. However, I was told that if one takes US citizenship, one loses the pensioner benefits from the Indian government.

If one takes India's dual citizenship, does one lose their pension which they have earned in India? Please advise so that I can plan my future accordingly.

-- Rekha Saxena

It appears that you will not lose your right to the pensions by opting for dual citizenship. However, the Dual Citizenship Act is silent on this subject. In any case, since you cannot take advantage of dual citizenship right now, revert when you are ready. By that time, the situation would be clearer.

While in India a few months ago I went to a broker to buy some Indian bank stocks. I was told that being a US citizen, I needed the Reserve Bank of India's permission for this. Can you please outline the procedure for a US citizen to invest in India? Will getting Overseas Citizenship of India (OCI)/dual citizenship help in this regard? If so, how?

-- Kishore

The paid-up value of shares purchased by each Non-Resident Indian, both on repatriation and non-repatriation basis under Portfolio Investment Scheme (PIS) should not exceed 5 per cent of the paid-up capital or paid-up value of each series of CDs (certificate of deposits). There is a similar limit of 10 per cent on all the NRIs put together.

The aggregate ceiling of 10 per cent can be raised to 24 per cent, if the general body of the Indian company passes a special resolution to that effect. RBI permission is taken to enable the RBI keep track of these limits.

The easiest course of action for you is to approach a bank handling PIS for NRIs. The bank, on your behalf, takes care of:

1. Applying to RBI for approval, if necessary.

2. Buying and selling shares and right issues.

3. Subscribing to new issue of shares.

4. Collecting dividend and interest.

5. Holding securities in safe custody.

6. Renunciation of right entitlement, and

7. Arrange for repatriation if the investment is repatriable.

I have repatriable funds from the sale of property in my NRO (Non-Resident Ordinary) account. I wished to transfer the funds from my NRO account to my NRE (Non-Resident External) account, but the bank manager has told me that this cannot be done. You have stated in your column in India Abroad that 'if the bank is allowing the funds to be repatriated they should allow the credit to the NRE account. You will find the definition of the word 'repatriation' in the regulations dealing with remittance of assets abroad. Kindly point out the same to the banker.'

Will you kindly give me some specific indication of order number and date of the regulation/s (RBI or other) which I can download and show the manager?

-- Ivy D'Souza

Rule 3.21 of FERM related with Acquisition & Transfer of Immovable Property in India, Section 2 states that credit to NRE account is tantamount to repatriation.

The capital gains, being current account transaction, can be repatriated after taxes are paid. The original amount subscribed in foreign exchange to purchase a house (or equity shares) is repatriable. This amount can be directly credited to the account.

In your reply on DTAA (Double Tax Avoidance Treaty) in India Abroad to a question by an NRI who wanted to settle in India after serving in the United States for 25 to 30 years, you have said:

'Article 20 of the Indo-US DTAA spells out that pensions are taxable in the country of residence, that is, India. However, Social Security benefits or other government pensions will be taxed only in America.' My question is where will the pension drawn for services rendered in the Government of India be taxed for an NRI settled in the US (with a green card) after retirement (in view of your reply above that government pensions will be taxed in the country from where it is drawn).

-- K S Sarma

The pension from the Government of India is always taxable in India. As per Article 16, it is the US which reserves the principal right of taxation and the NRI would get a credit for the amount of tax paid in the US in his Indian tax return, thereby eliminating the inherent double taxation.

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