TDS on interest earned by banks is 20% if you don't have PAN

Is it compulsory for banks to deduct 33.99% across the board on interest from non-resident Indians (NRIs) or 10% against permanent account number (PAN)? Do banks accept form 15G/15H, where applicable?

—V.S. Rajan

Banks have to withhold tax on interest—up to 10 million—paid to NRIs at 30.9%. If the interest paid exceeds 10 million, the rate of withholding tax is 33.99% on account of surcharge of 10%. But if you are a tax resident of a country with which India has a Double Tax Avoidance Agreement (DTAA) and the rate of tax on interest earned as per the DTAA is lower, then you can get the benefit of lower withholding tax. You would need to produce a tax residency certificate (TRC), containing prescribed particulars, of the country in which you are a tax resident. If the TRC does not contain the prescribed particulars, you will need to fill in a declaration in form 10F. If you do not have a PAN, the minimum rate of withholding tax would be 20%. Form 15G and Form 15H are applicable only for Indian residents and banks can’t accept these from NRIs.

Is an NRI liable to pay tax in India on salary income earned outside India? If so, what is the tax liability?

—Vandana Bakshi

The taxability of income depends on the residential status under the Income-tax Act and not under the Foreign Exchange Management Act (Fema). Under Fema, if a person goes outside India for employment or business, she would be considered a non-resident. Under tax laws, the residential status is determined on the basis of the number of days one stays in India during a financial year.

If a person is a non-resident under Fema, but a resident under tax provisions, her worldwide income would be liable to tax in India. This may particularly happen in the initial year if a person goes outside India for employment in the second half of the financial year. If her stay in India exceeds 182 days in that financial year, her worldwide income is liable to tax. Hence, the salary earned outside India would be liable to tax in India, subject to the benefits of DTAA, if any, with the country where the salary is earned. If the salary is taxed in India, she would be entitled to get tax credit for foreign tax paid on salary. If a person is a non-resident under the Income-tax Act, the salary earned outside India—where services are rendered outside India and salary is received outside India—would not be taxed in India. However, if the salary is earned, received or has arisen in India, it would be taxable in India, irrespective of the residential status.

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