My daughter was born in the US and hence is a US passport holder. However, we returned to India 17 years ago. So, she is a resident of India holding an Overseas Citizen of India (OCI) card. Mutual fund distributors are suggesting to apply for her KYC as resident. Please advise on the correct status to apply for KYC/ FATCA for her.
—Prashant
Investors frequently get confused between residential status and nationality. Since your daughter is currently a resident in India she will have to register as a resident only. Of course while registering she needs to provide the details of her US nationality and her US tax ID number in the relevant places. Please take proper professional consultation as US citizens may have to pay tax in the US also on their worldwide income despite being a resident in another country and thereby paying tax in that country as well. Also, US tax laws have a provision for taxing the accrued (but not realised) gains on what it terms as Passive Foreign Investment companies (PFIC) which would include Indian mutual funds also. In other words, your daughter may have to pay tax in the US on the accrued (but not realised) capital gains on the Indian mutual funds. Your daughter should consult an investment cum tax adviser who understands tax matters both here and in the US.
According to your response on a query of a person who bought a house in 1991, you advised that “You have the option of substituting the fair market value as on April 1, 2001 as your cost, and then indexing it rather than taking the actual cost incurred by you in 1991.” However, I was not aware of any such option or instructions while calculating long-term capital gains (LTCG) in a similar case. I shall be glad if the investment adviser will apprise me with the instructions of IT department so that I may also use this option.
—S K Handa
Section 55 (2) (b) of the Income tax Act that determines how cost is to be computed were amended by the latest finance act 2017 (budget 2017) to provide that where the capital asset has been bought before April 1,2001, the fair market value as on April 1, 2001, can be substituted as the cost of the asset instead of the actual cost at the option of the tax payer.
We are senior citizens of 74 and 68 years of age. We have made all investments amounting to Rs 80 lakh in mutual balanced funds like HDFC Prudence Balance Fund, ICICI Prudential Balance Fund, SBI Magnum Balance Fund and L&T India Prudential Balance Fund. All these funds have dividend payout on monthly or quarterly basis and we have invested in the same so that whatever dividends we are getting, are tax free. We feel that at this advance age, we should not risk our investments in the share markets and/or equity mutual funds. Please advise if we have taken a risk-free decision in investing in mutual balanced funds.
—V N Vasudevan
All the four balanced funds mentioned by you namely HDFC Prudence Balanced Fund, ICICI Prudential Balanced Fund, L&T India Prudence Fund & SBI Magnum Balanced funds are excellent and well-rated balanced funds.Yet it seems there has been a mis-sale to you based on the facts narrated by you since balanced funds may not be suitable for you or at best be suitable for a much smaller part of your overall investment kitty of Rs 80 lakh. Balanced funds would typically invest around 65-70% of the funds in equity and the balance 30-35% in a variety of debt instruments. They are excellent instruments for relatively medium-term investment horizon of around five-eight years for investors with moderate to aggressive risk profiles. But this kind of investment is definitely not suitable for risk averse investors such as yourselves. At the most, a small fraction of your Rs 80 lakh should have been invested in such funds. I repeat that this is not so because these funds are bad per se (in fact they are among the best in the balanced fund category) but because this category is not suitable for you. The dividends you have been receiving every month/quarter/year are tax free but clearly not guaranteed. They will cease in the event there is a significant downturn in the market. Please seek proper non-biased financial advice (preferably from a fee-only investment adviser) before taking any further decisions in the matter.
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