Rediff India Abroad
 Rediff India Abroad Home  |  All the sections

Search:



The Web

India Abroad




Newsletters
Sign up today!

Get news updates:
  
Mobile Downloads
Text 67333
Article Tools
Email this article
Top emailed links
Print this article
Contact the editors
Discuss this Article


Home > India > Business > Business Headline > Report

Interest on NRE deposits is tax-free in India

A N Shabhag and Sandeep Shanbhag | April 10, 2008 16:47 IST

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

A Rediff India Abroad feature:

I would like to know if there will be any TDS (tax deduction at source) on the interest earnings of my NRE/NRO/FCNR (Non-Resident External / Non-Resident Ordinary / Foreign Currency Non-Resident) accounts?

If yes, how can I avoid it since my earnings for 2008 will be less than Rs 100,000?

-- Ramu

Interest on NRE and FCNR deposits is tax-free in India.

The interest on NRO is fully taxable at the rates applicable to Residents.

Under the Income Tax Act, it is mandatory for the banks to apply TDS (= Withholding Tax) on NRO interest. But there is no income threshold under which TDS is not chargeable.

However, TDS is applicable @30.9 percent (plus surcharge, if any) on the entire NRO interest (without any threshold). The TDS is applicable on accrual basis on cumulative deposits. If your tax liability is less than the TDS, the only practical way to get the refund is to file the tax returns.

The TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates which again depend upon your income and the exemptions, deductions and rebates you can claim. The TDS can be set off against your actual tax payable and pay only the difference. In case the TDS is higher than the tax liability, you will get a refund.

Form 15-G (for non-seniors) or 15-H (for senior citizens), requesting for non-application of TDS is not available for Non-Resident Indians.

After having worked abroad, I am planning to return to India.

1. I am told that to avoid tax on overseas income, I should avoid being in India for 182 days or more.

2. For 2008, this boils down to the fact that anybody who moves back to India for good and stays in India starting October 1, 2008 would have to pay tax in India on overseas income.

3. My I-94 expires on October 1, 2008. That means that I have to start latest on Sept 31 night/Oct 1 early morning US time, and would land in India on October 3, 2008 morning. Does this suffice to avoid tax on my overseas income?

-- S  Mehta

If you are in India for 182 days or more in a financial year (fiscal year April to March), you will be treated as an Indian resident and consequently your global income would be taxable in India.

If you land in India on the October 3, 2008, for the fiscal year 2008-09 you would be in India for a period of 180 days and hence retain your NRI status. Consequently for that year, your foreign income would be tax-free in India.

Even if you cross this period of 182 days, there is a transitional status of RNOR (Resident but not Ordinarily Resident) between being an NRI and becoming a full-fledged Resident after returning to India permanently.

An RNOR is a person who satisfies one of the following conditions:

a) He has been non-resident in India in nine out of the ten previous years preceding that year, or

b) Has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

An RNOR is not required pay tax in India on his forex income.

Most of the NRIs will be caught by the requirement of stay in India for 729 days or less during the last seven financial years.

Consequently, anyone who returns after seven or more financial years of being an NRI will become RNOR for two years. Those returning after six years will become RNOR for one year only. This is subject to his stay in India during the previous seven years for 729 days or less.

Those returning after being NRIs for five continuous years or less will become Residents immediately.

I am Indian national, residing in Singapore as a permanent resident for six years and working in Singapore. I will be moving to India to work as regional technical manger to serve South Asia and Gulf countries. I will be residing in India, but moving around these countries and getting my salary in Singapore dollars deposited in a Singapore bank account. I have an NRE saving account and planning to transfer money from Singapore using this account. Our company doesn't have any office in India. The Singapore income tax will be detected from my salary by Singapore office. Can I continue to hold the NRE account? If yes, any tax issues there?

-- Suraj

Since you have not returned to India permanently, it is not necessary for you to convert NRE account into a Resident account, even if you become a Resident in India. In case your stay in India is 182 days or more during a financial year, your status will change to that of a Resident for the fiscal year.

There is a transitional status of RNOR between being an NRI and becoming a full-fledged Resident after returning to India permanently.

Resident but not Ordinarily Resident (RNOR) is a person who satisfies one of the following conditions:

a) he has been a non-resident in India in nine out of the ten previous years preceding that year, or

b) has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

An RNOR is not required pay tax in India on his forex income.

From the facts given, it appears that you will be either an NRI or an RNOR for the fiscal year 2007-08.







Advertisement
Advertisement