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If an NRI’s income is below Rs2.5 lakh, she may still file a tax return to claim any refund

LiveMint logoLiveMint 26-06-2017 Sonu Iyer

I have about Rs15 lakh in fixed deposits in my non-resident account in India. And there are also about Rs4 lakh in the savings account. Will TDS be deducted on interest from these deposits? How should I pay tax on them? I usually check on these accounts when I visit the country.

—Ram Narayan Chodhary

Primarily, there are two types of non-resident accounts: (a) non-resident (external) rupee (NRE) account, and (b) non-resident (ordinary) (NRO) account.

Interest income from NRE accounts (savings and fixed deposits) is exempt from income-tax in India, provided the individual qualifies as a ‘person resident outside India’ under the exchange control laws. The determination of residential status under the exchange control law is different from income-tax laws.

Under the exchange control law, when a person leaves India for another country for the purpose of employment or for carrying on business or for any other purpose indicating his intention to stay outside India for an uncertain period, he may be considered as a ‘person resident outside India’. Such an individual is also required to designate his resident savings bank accounts as NRO accounts.

Income-tax would be deducted by bank as TDS on interest income from NRO accounts at 30% (plus applicable surcharge and education cess) if you qualify as a non-resident in India, as per the income-tax laws. While tax deduction will be at 30% (plus applicable surcharge and education cess), your interest income will be taxable at slab rates (plus applicable surcharge and education cess).

You are required to file an income-tax return and pay taxes in India only if your total taxable income exceeds Rs2.5 lakh. In case your taxable income is below the maximum amount not chargeable to tax in India (Rs2.5 lakh), you may still voluntarily file an income-tax return to claim refund of any excess tax deducted on the income.

I have been an NRI for about 20 years. I have pension and house rent as sources of income in India. I use the amount whenever I come here. I pay tax in India. I have an NRO account and I keep the amount in fixed deposits from time to time. I have recently come to know that the Reserve Bank of India (RBI) now permits transfer of funds from an NRO account to an NRE account within the overall ceiling of $1 million per financial year, subject to payment of tax, since 16 January 2014. Can I transfer the amount (earned from my pension and house rent in India) from my NRO account to the NRE account in India?

—Tara Desai

Under the exchange control laws, a non-resident Indian is allowed to repatriate an amount of up to $1 million per financial year out of the balance in the non-resident (ordinary) (NRO) accounts, subject to a certificate being issued by a chartered accountant in the prescribed format. Funds can be transferred to NRE account within this $1 million limit. Remittances exceeding $1 million in a financial year require prior permission of the RBI.

Accordingly, you may transfer the amount in your NRO account to NRE account subject to certificate issued by a chartered accountant in the prescribed format.

I am an NRI based in the US. I want to buy and gift an apartment in Mumbai to my younger sister. She got divorced earlier this year. She has taken up a job but her income is very low and she can barely make ends meet after paying rent at her paying guest accommodation. I would like to, at least, secure her future by gifting a safe place to live. What are the tax implications if I buy a 2-3 bedroom apartment in Mumbai and gift it to her?

—Aakanksha

There is no gift tax in India. However, income tax is payable on any sum of money, movable property or immovable property received by an individual without consideration (that is, without a quid pro quo). There is an express exemption available under the income-tax law for any gift received from a relative. The term ‘relative’ includes the following:

i. Spouse

ii. Brother or sister

iii. Brother or sister of the spouse

iv. Brother or sister of either of the parents

v. Any lineal ascendant or descendant

vi. Any lineal ascendant or descendant of the spouse

vii. Spouse of the person referred to in clauses (ii) to (vi)

Therefore, a gift of an apartment to your sister will not be subject to tax in India in your hands or in your sister’s hands in India. A gift deed registering the gift is recommended.

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

Queries and views at mintmoney@livemint.com

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