Your Taxes

I am an NRI working in the UAE for more than two decades. I am now considering returning to India for good in May/June 2015. During my India visits in the last 10 years, my stay has been limited to about 400 days. I have FDs, which are in NRE and FCNR accounts. Currently the interest earned on these is tax-free. What will happen to the tax benefits on these once I come back? Secondly, I wish to make new FDs (NRE or FCNR). Is there a way to plan new FDs from the tax point of view before my return?

J Shah

The interest earned on NRE and FCNR accounts would be exempt in the hands of a person who is not an ordinarily resident in India during the specified financial year. The NRE account would be converted to a Resident Foreign Currency account on you becoming a resident in India, as per the Foreign Exchange Management Act, 1999, during the previous financial year. Further, the FCNR account would also be converted at the time of its maturity. Upon conversion, the interest income earned in India would be taxable in India.

You could accordingly plan the maturity of the investments to fall within the period of you not becoming an Ordinarily Resident in India as per the Income Tax Act, 1961. Further, please consult with your bank to have a better understanding on the specific rules relating to the possibility of investment in an FCNR account in the year of your return to India for good.

I own two flats. The first, where I reside now with my son, is held by me jointly with my son. The second flat, of which I am the sole owner, is let out and tax on rental income is paid. I intend to move into the second flat after the tenant vacates the same. As I understand, a flat other than one that is self-occupied is deemed to be let out on rent and therefore notional tax based upon municipal valuation is required to be paid. My query is whether the above provisions of I-T rules are currently in vogue. Kindly also advise as to whether I am liable to pay taxes, taking into consideration that there will be actually no rental income as both the flats would remain occupied separately by my son and myself.

Samar Kumar Biswas

Yes, your understanding is correct. The beneficial treatment of self-occupancy is with respect to only one property. When you own two properties, irrespective of whether the second property is let out or not, it will be deemed to be let out. The rental value to be considered for taxation would be the one which the property might reasonably be expected to earn during the financial year. In your scenario, you would be allowed to take a choice between the houses, as to which would be claimed as self-occupied and deemed to be let out.

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