Home / Money / Personal-finance /  NRI taxation: Convert FD into NRO account when settling abroad

My father opened an FD account about 7 years ago when he was a resident Indian; the origin of money was India. Then, he moved to Qatar with me and is an NRI for more than 5 years now. His FD will mature in February 2019. Should he convert the FD to NRE status? Does he need to pay tax on it? Can these funds be repatriated to Qatar on maturity?

—Manjit Sehgal

Primarily, there are three types of non-resident accounts: non-resident (external) rupee (NRE), foreign currency (non-resident) (FCNR) and non-resident (ordinary) rupee (NRO) accounts.

Under the exchange control law, when an individual leaves India for employment or for business or for vocation outside India or for any other purpose indicating his intention to stay abroad for an uncertain period, his existing resident bank accounts should be designated as NRO account. An NRE account may be opened afresh.

Interest income from NRE accounts (savings and fixed deposits) is exempt from tax in India under Section 10(4)(ii) of the income tax Act, provided the individual qualifies as a “person resident outside India" under the exchange control law. The rules for determination of residential status under the exchange control law are different from those under income tax law.

Interest income from FCNR account (on deposits in foreign currency) paid by a bank where the acceptance of such deposits is approved by the Reserve Bank of India (RBI) is exempt from tax in India under Section 10(15)(iv)(fa), provided the individual qualifies as a non-resident or not ordinarily resident under income tax law.

Interest income from resident bank account and NRO bank account is taxable at the same slab rate. Also, interest income from savings bank account (either resident or NRO) is eligible for deduction from taxable interest income up to 10,000 (effective FY19— 50,000 for senior citizen aged 60 years or more for both, interest income on savings account and fixed deposits). However, withholding tax provisions are applicable in case of NRO bank account.

Tax would be deducted by bank as TDS on interest income from NRO accounts at 30% (plus applicable surcharge and education cess) if the individual qualifies as a non-resident in India. While TDS will be at 30% (plus applicable surcharge and cess), the interest income will be taxable at slab rates (plus applicable surcharge and cess). However, an individual qualifying as non-resident may avail relief under India’s Double Tax Avoidance Agreement with the country of which such individual is tax resident by furnishing Tax Residency Certificate and other specified particulars. In such cases, TDS and final tax rate may be lower than 30% (plus applicable surcharge and cess).

In your case, your father may convert the existing fixed deposit into an NRO fixed deposit that is maturing in February 2019. Interest income from fixed deposit will continue to be taxable in India. Your father may claim deduction up to 10,000 or 50,000 as mentioned above.

An NRE account may be funded from remittances from overseas bank account. Funds from NRE account are freely repatriable. However, funds from NRO account up to $1 million per financial year are permitted to be remitted outside India.

For full answers, go to

Sonu Iyer is tax partner and people advisory services leader, EY India

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