BackInterest earned on NRO savings bank account will be fully taxable in India
Firstly, you need to establish your residential status as per the Income-tax ActNRO account is treated similar to interest income from a savings bank account; so the taxpayer can claim deduction under Section 80TTA of up to ₹10,000 on it
PremiumI left for higher education in September 2019. I was working with a multinational company and I got salary till August. I sold some shares worth ₹2 lakh that I had held for four years before leaving. I also have some mutual fund investments. What will be my tax liability for the financial year and how should I file my income tax returns (ITR)?
—Divya Goel
Firstly, you need to establish your residential status as per the Income-tax Act. You must meet any of the following conditions and both the additional conditions:
Conditions: you are in India for 182 days or more in the financial year (FY); or you are in India for 60 days or more in the FY and 365 days or more in the four FYs immediately preceding the relevant FY.
Additional conditions: you are a resident in India in two of the 10 FYs immediately preceding the relevant FY; and you are in India in the seven years immediately preceding the relevant FY for 729 days or more.
If you meet any of the first set of conditions and both the additional conditions, you shall be considered a resident in India. If you meet any of the first conditions but not the additional conditions, you shall be considered a resident but not ordinarily resident (RNOR). If you do not meet any of the first conditions, you shall be a non-resident in India.
Note that if in a particular FY, you are a resident in India for tax purposes, your entire global income shall be taxable in India for that FY. However, irrespective of your residential status, the income that is earned in India—salary or income from the sale of equity shares or mutual funds in India—shall be taxable in India. Taxation on gains from the sale of equity shares depends on whether these are listed or unlisted and their holding period. Gains from the sale of listed shares are considered long term if they are held for more than 12 months and are taxed at 10% if the gains are in excess of ₹1 lakh (no indexation is allowed). If the listed shares are sold within 12 months, it will result in short-term capital gains, which are taxed at 15%.
I have a non-resident ordinary (NRO) savings bank account. What is the tax liability on the interest earned from this account? Should I consider moving this money to my wife’s account as she lives in India?
—Rinish TR
Interest income earned on an NRO account is fully taxable in India. Tax must be paid according to your income tax slab by including it under the head—income from other sources—in your ITR. It is treated similar to interest income from a savings bank account; so the taxpayer can claim deduction under Section 80TTA of up to ₹10,000 on it. NRIs must file ITR in India if their total income exceeds the minimum exemption limit of ₹2.5 lakh. There is no tax implication on the transfer of funds in your NRO account to your wife’s account. Gifts to specified relatives, including wife, are exempt from tax.
Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at mintmoney@livemint.com
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