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Business News/ Money / Calculators/  Interest on NRO balance is subject to TDS
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Interest on NRO balance is subject to TDS

There are no basic exemption limits on interest earned by a non-resident

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I have a non-resident external (NRE) account. In case I return to India before maturity, do I have to pay tax on it?

—Sania

On your return, you will have to re-designate your NRE account as a resident account or the funds held in the account may be transferred into a resident foreign currency (RFC) account (if you are eligible to open and hold a RFC account) immediately after your return to India.

The exemption on interest earned from an NRE account is available until you are non-resident under the exchange control regulations.

However, interest earned on RFC accounts held with any scheduled bank will be exempt as long as you are a resident but not ordinarily resident in India. In any other case, the interest earned will be taxed in India at the slab rates.

Do I have to pay tax either in India or the US on the amount gifted to me by a friend?

—Dinesh Gupte

From an Indian tax perspective, where any individual receives money from any person other than a relative in excess of 50,000 in any financial year without any consideration, such money will be taxed as income from other sources in the hands of the recipient.

The taxability of the amount received by you also depends on where the aforesaid income is said to accrue or arise and your residential status for tax purposes. For a resident, irrespective of where the gift is received, amount is taxable in India. But if you are a non-resident for Indian tax purposes, only such income that is received or deemed to be received in India or income that accrues or arises in India or is deemed to accrue or arise in India would become taxable.

So any gift received by you outside India would ideally fall outside the purview of taxation in India.

With respect to the taxability of such income in the US, you may consult your tax advisers in the US. However, where such income is taxed both in India and the US, you should be able to claim relief from double taxation in the country of your residence by claiming credit of taxes paid against the doubly taxed gift income.

Will tax deducted at source (TDS) be applicable on interest on non-resident ordinary (NRO) account?

—Mary Jose

Interest earned on balances held in NRO account will be subject to TDS. There are no basic exemption limits on interest earned by a non-resident and the entire interest income would be subject to TDS.

However, you will be eligible to the benefits that may be available under the double taxation avoidance agreement (DTAA) that India has entered into with the country in which you are a tax resident in case the same are more beneficial to you. You may consult your tax adviser regarding the benefits under the applicable DTAA with specific details.

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Published: 08 Jan 2015, 06:35 PM IST
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