Interest on NRE account deposit exempt from tax
After working in Singapore for 20 years, I returned to India permanently last year. I had opened non-resident external (NRE) fixed deposits (FDs) with scheduled banks in India, while I was abroad, which are due for maturity in 2017. After my return, my residential status is that of Resident but Not Ordinarily Resident (RNOR) for the next two assessment years (2015-16 and 2016-17). For financial years (FYs) 2015-16 and 2016-17, I would be accruing interest on my NRE FDs. What is the tax liability?
Any interest earned on the deposit in an NRE account is exempt under section 10(4)(ii) for an individual who is a ‘person resident outside India’ as per the Foreign Exchange Management Act,1999, (Fema) or who is a person permitted by the Reserve Bank of India to maintain the aforesaid account. A person returning to India permanently becomes a ‘person resident in India’ under Fema. On becoming a ‘person resident in India’ under this Act, the onus is on the individual to notify the bank of the change in status from being a ‘person resident outside India’ to ‘person resident in India’ so that NRE accounts are re-designated as resident accounts or the funds may be transferred to the Resident Foreign Currency (RFC) accounts (if the individual is eligible for this). Though the interest earned on a resident account is taxable in India, interest earned on deposits in an RFC account is exempt under section 10(15)(iv)(fa) till the period the individual is an RONR. You may check with your bank if you can open an RFC account and transfer your FDs in the NRE accounts to it to claim such exemption.
I live abroad but I have a rupee FD in India whose interest is credited to my savings account there. Do I need to file a return for this interest income despite the fact that the bank deducted tax at source (TDS)?
It is mandatory for an individual to file income tax return in case her gross total income (before allowing deductions under sections 80C to 80U) exceeds Rs.2,50,000 in a given FY (this limit is Rs.3,00,000 for senior citizens and Rs.5,00,000 for super senior citizens). However, in case gross total income in India does not exceed the limits specified above, the individual is not required to file her India tax return. It is, however, pertinent to note that if TDS is more than the actual tax liability, an income tax return must be filed to claim refund.
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