NRI, resident can jointly hold an NRO account on ‘former or survivor’ basis

Interest earned on NRO rupee account (savings or fixed) is taxable in India. Photo: Indranil Bhoumik/Mint

Can an NRI and an Indian resident jointly hold a non-resident (ordinary) or NRO account? Will the taxation differ if only the NRI holds the account?

—Sanjiv Tankha

As per the Foreign Exchange Management (Deposit) Regulations, 2016, an NRO account may be held jointly with residents on “former or survivor” basis. In case of “former or survivor” basis, the “former” alone can operate the account. If the “former” expires, the “survivor” can operate the account. For example, if you are an NRI, you may hold a joint NRO Account with your mother who is a “resident in India” under the exchange control law on “former or survivor” basis.

Interest earned on NRO rupee account (savings or fixed) is taxable in India. In case of joint bank account, it is important to determine who is the real owner of the funds and tax the income arising therefrom accordingly. Also, under the India Income-tax law, clubbing provisions may apply and shift the taxation to the other person. An aggregate deduction of up to Rs 10,000 may be claimed for interest earned from all savings accounts while filing the tax return in India. 

The TDS on interest income from NRO accounts is at 30% (plus applicable surcharge and education cess). While the TDS will be at 30% (plus applicable surcharge and cess), your interest income will be taxable at slab rates (plus applicable surcharge and cess). The first holder may need to give a declaration to the bank, if the withholding tax (TDS) is to be made in the name of the second holder. Banks normally tend to withhold tax in the name of the first holder.

I am an NRI since the last 12 years. I have investments in mutual funds, fixed deposits (FDs) in my non-resident (external) or NRE account and direct stock investments. All my investments are done through and linked to my NRE account. If I sell any investment, my income would be around Rs 2.5 lakh per annum. In that case, there will be tax deducted at source (TDS), as applicable. Since I do not have any income in India and TDS will be deducted and deposited, is it necessary to file tax returns? 

—Dinesh Mahajan

Under the India Income-tax law, every individual is required to file India income-tax return if his total income exceeds the maximum amount not chargeable to income tax. For financial year 2018-19, the maximum amount not chargeable to tax is Rs 2.5 lakh for determining the quantum of income tax liability.

However, for the purposes of determining the threshold limit for obligation to file return, the total income should be computed before giving effect to following :

(a) Deductions under Chapter VI-A (such as under Section 80C, 80D, etc).

(b) Income exempt under Section 10(38) (Exemption on long term capital gains on listed equity shares and equity-oriented mutual funds. Although, this exemption is not applicable from FY2018-19 onwards).

To illustrate, for FY19, the total income after considering deductions under Chapter VI-A, namely, under Section 80C of Rs 1.5 lakh and for mediclaim under Section 80D of Rs 25,000, is Rs 2.4 lakh and hence tax payable would be nil. However, since the total income before considering the deductions under Chapter VI-A (i.e. Rs 4.15 lakh) exceeds Rs 2.5 lakh, the individual is still required to file India income-tax return.

In your case, if your total income for FY19 without considering deductions under Chapter VI-A exceeds Rs 2.5 lakh, you are still required to file India income-tax return.

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