BackTax on NRE interest depends on residential status
Interest earned on deposits with scheduled banks in foreign currency is exempt from tax
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I was a non-resident during financial year (FY) 2013-14. I returned to India on 16 December 2013. And on 14 May 2014, I went to the US and returned to India on 21 August 2014. Will I be considered a resident for FY15? I have non-resident external (NRE) fixed deposits (FDs). Will the interest earned on these in the year 2014-15 be taxable?
—K.K. Sheth
As per the Indian tax laws, the residency of an individual is based on her physical presence in India. A person qualifies as a resident if she satisfies any of the following conditions: stays in India for more than 182 days during the relevant FY; or stays more than 60 days in the current FY and more than 365 days in the previous four FYs.
However, the 60-day rule is not applicable to an Indian citizen who is leaving India for the purpose of taking up employment. Similarly, it is not applicable to a person of Indian origin who is coming to India for a visit.
If one does not satisfy any of the aforementioned conditions, she shall qualify as non-resident in India. If any of the above two conditions are satisfied, then it is required to be analysed whether the person qualifies as a not ordinarily resident (NOR) or a resident and ordinarily resident (ROR).
A person shall qualify as a NOR if she satisfies any of the following conditions; otherwise, she qualifies as an ROR:
—Stay in India in previous seven financial years is less than 729 days; or
—Qualifies as a non-resident for at least nine out of the previous 10 FYs.
In your case, you arrived in India on 16 December 2013 and stayed till 14 May 2014. Considering that you have spent more than 60 days in FY14 and if your period of stay cannot be categorised as visit, there is a possibility that you might qualify as a resident for FY14 if your stay was more than 365 days in the previous four FYs (FY 2009-10 to FY 2012-13).
You returned to India on 21 August 2014 and have been staying here since then. Given this, you would have spent more than 182 days in India in FY15 and, therefore, qualify as a resident. If you would have spent less than 729 days in the previous seven FYs or were a non-resident for at least nine out of the previous 10 FYs, you will qualify as an NOR.
Interest earned on deposits with scheduled banks in foreign currency is exempt from tax under section 10(15)(fa) of the Income-tax Act, 1961, provided one qualifies as a non-resident or NOR for that FY. Taxability of the NRE FD interest will depend on your residential status for FY15.
Queries and views at mintmoney@livemint.com
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