Indians can prematurely close public provident fund account

dubai - Premature closure is permitted to meet medical expenses of the account holder, spouse, dependent children and parents.

Q: When I was in India before coming to the Gulf, I had opened a public provident fund account which has been in operation for six years. I want to close the account and withdraw the money. Am I permitted to do so?
- R.C. Mody, Sharjah
A: A public provident fund account matures after 15 years from the date of its opening. Withdrawals from this account are allowed after seven years of opening the account. However, this is restricted to 50 per cent of the amounts deposited till the end of the fourth year. The government has now relaxed this provision for meeting certain contingencies.

The public provident fund account can be closed prematurely after a minimum of five years where the amount is required for meeting medical expenses for certain ailments afflicting the account holder, spouse, dependent children and parents. Premature closure is also permitted for meeting higher education expenses of the account holder or his children. However, for doing so, supporting documents and bills will have to be furnished. In other circumstances, the money can be withdrawn only at the time of maturity after 15 years.

Q: I provided engineering services to an Indian firm for which I had visited India and spent about 65 days there. The Indian company must pay me the fees. They have asked for my permanent account number. Since I do not have it, I have been told that a higher withholding tax rate of 30 per cent will be applicable. Is this correct?
- L.K. Bhattacharya, Dubai
A: What the Indian company has told you is correct because under section 206-AA of the Income-tax Act, if the non-resident to whom the payment is to be made does not furnish his permanent account number, tax will be deducted at source at the maximum rate of 30 per cent. However, this rule has now been relaxed and for those non-residents who have to receive interest, royalties and fees for technical services, and who do not have a permanent account number, tax will be deducted at the rates prescribed in the Double Tax Avoidance Agreement.

For this purpose, the non-resident will have to furnish his name, e-mail id, contact number and address in the country of residence. He will also have to provide either a tax residency certificate or a tax identification number allotted to him. UAE residents are given a tax residency certificate under the Double Tax Avoidance Agreement. Therefore, if you furnish this certificate, tax at the lower rate specified in the agreement will be applicable.

Q: My father runs a small business along with his brother. In the last financial year, the business had made a loss and, therefore, there was no taxable income. Is he still required to file a tax return and, if so, by what date?
- P. Kanoria, Doha
A: It is necessary for your father to file a tax return though he has no taxable income. The loss which he suffered can be set off against profits of subsequent years. However, in order to carry forward the loss, it is mandatory under section 80 of the Income-tax Act to file the return of income and have the loss determined by the tax department.

Therefore, he must ensure that the return is filed by the due date. If he is not required to submit a tax audit report, the return should be filed by July 31, 2016. If a tax audit report is to be filed, the last date for submitting the return of income is September 30, 2016.

Q: I am planning to return to India. I want to know whether I can invest a lumpsum and get a fixed monthly return. Is such a product available which can also give some benefit of appreciation?
- P.K. Mishra, Ruwi
A: Mutual funds generally have a systematic investment plan whereby a fixed amount is contributed monthly to the plan by an investor. Some mutual funds have come up with an innovative scheme whereby a lumpsum amount is invested and the investor is paid 0.75 per cent every month.
Therefore, assuming that a person invests Rs1 million, he can withdraw Rs7,500 every month. Under this scheme, investors can redeem upto 10 per cent of the initial amount invested within a year.

The redemption per month is fixed and the units of the mutual fund scheme get reduced based on the net asset value as of that date. If the NAV of the scheme goes up, investors will benefit from the appreciation. Presently, only debt schemes of certain mutual funds offer this facility. Some private insurance companies have also developed schemes which offer guaranteed monthly payouts until the maturity of the policy.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policies.

• India