I am an Indian citizen working for a multinational group since the last eight-nine years. I have worked in different European and Asian countries and have paid and filed tax returns in the respective countries. I have significant amount of savings which I invest in India in fixed deposits with State Bank of India (SBI). The bank has been taking 30% tax deducted at source (TDS) on interest for which I have been claiming tax credit in the country of employment. I am now a tax resident of Dubai. Since there is no personal taxation in Dubai, the entire TDS would be a loss. Is there any method of reducing or claiming back TDS?
Banks are liable to withhold a tax of 30% plus applicable surcharge and cess in terms of the provisions of section 195 of the Income-tax Act.
Since you are a tax resident of Dubai, you can claim the benefit of the double tax avoidance agreement between India and Dubai by virtue of which you would be liable to a lower rate of withholding tax of 12.50%. To claim the benefit, you should submit a tax residency certificate (TRC).
The TRC would be issued by the ministry of finance, Dubai. In addition to TRC, you should submit Form 10F to SBI with details of your status, Permanent Account Number (PAN), address, nationality, Tax Identification Number and the period for which the tax residential status is applicable. The bank would then withhold tax at the lower rate.
Please note that if you do not have PAN, tax will be withheld at a minimum of 20%. You may also claim tax refund by filing income tax return wherein you would be entitled to the threshold exemption limit and benefit of lower slab rates.
I have deposits in a foreign currency non-resident (FCNR) account. Many banks have increased FCNR deposit rates. Can I withdraw from my existing account and put it in one of these banks which have increased rates? What would be the tax implications?
If your existing FCNR deposit is not subject to lock in, you can withdraw.
There could be some penal charges and reduction in interest on account of premature withdrawal. However, you must confirm with banks as to whether the higher rates of interest would be available on such deposits from premature withdrawal.
The interest earned on FCNR deposits is exempt from tax under the Indian tax laws. Similarly, there are no tax implications on maturity of FCNR deposits. Hence there would be no tax implications on withdrawal. However, you may be subjected to tax on the interest in the country where you are a tax resident.
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