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An NRI who worked in the US and Canada maintains NRE and FCNR deposits in Indian banks. If he returns to India for permanent settlement, can he retain the NRE/FCNR deposit status? What is its taxability in India? How are foreign bank deposits taxed?
Manjayil SK
As per the Foreign Exchange Management (Deposit) Regulations, 2000, and RBI’s master circulars , a NRI (Indian citizen/person of Indian origin) is required to convert the NRE (Non-Resident external) account into resident rupee account or RFC (Resident Foreign Currency) account immediately upon coming to India for employment or due to change in residential status. An NRI may continue to hold the FCNR (Foreign Currency Non-Resident) deposits till maturity. Further, from FCNR account, the funds can be transferred to RFC account post repatriating to India on a permanent basis.
After repatriatiion, income earned from NRE/FCNR account is taxable in India and the accounts need to be re-designated as resident rupee/RFC account.
Further, taxability of any income earned from foreign bank accounts depends on the residential status of the individual in India for the said tax year. Such income will not be subject to tax in India if the individual qualifies as a non-resident or not-ordinarily resident. However, once he qualifies to be a resident and ordinarily resident , his income from foreign bank accounts will be taxable. If the income has been taxed overseas as well, he can take recourse to the tax treaty for claiming credit of such taxes against the India liability.
My wife, 55 years old, is a housewife; her income is below ₹2 lakh from her property/self-employed income. If she gets STCG, does she have to pay STCG tax of 15 per cent even if her total income comes below ₹2.5 lakh (the basic exemption limit)?
K Nagarajan
Short-term capital gains (STCG) from sale of equity shares or equity-oriented mutual funds by a resident individual is taxed at the rate of 15 per cent under Section 111A of the Income Tax Act. In addition to this, surcharge (if applicable) and health and education cess at 4 per cent shall apply.
If the taxable income of a resident individual excluding income from STCG is less than the basic exemption limit of ₹2.5 lakh, relief can be claimed to the extent of difference between the basic income exemption limit and net taxable income excluding STCG. In other words, STCG tax at the rate of 15 per cent will have to be paid only on such amount of STCG that exceeds the basic exemption limit.
Assuming your wife qualifies as a resident of India for tax purposes, net STCG income (total STCG minus amount of basic exemption limit left after adjusting the property/self-employment income), is taxed at 15 per cent.
The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in
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