How NRE account interest income is taxed

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Is it true that NRE income is not taxable in India but only in the country of residence?

— Name withheld on request

 

Interest income from non-resident (External), or NRE, accounts (savings and fixed deposits) earned by an individual is exempt from tax in India, provided the individual qualifies as a “person resident outside India“ under the exchange control law or is a person who has been permitted by the Reserve Bank of India (RBI) to maintain NRE account. The rules for determining residential status under the exchange control law are different from India’s I-T law.

Under the exchange control law, when a person leaves India for the purpose of employment or business, or for any other purpose indicating his intention to stay outside India for an uncertain period, he may be considered  a “person resident outside India“. Further, when a person returns to India permanently, he may be considered a “person resident in India”.

Accordingly, depending on your residential status under the exchange control law or permission by the RBI to maintain such an account, interest income from an NRE account is exempt from I-T in India. You are required to report the same in the Indian ITR under Schedule exempt income as exempt “interest income”.

 

I am an NRI. I have NRO and NRE accounts in India. How do I transfer my savings from my salary (all taxes paid) to Australia?

— Name withheld on request

 

Under the exchange control law, the balance held in the NRE Account can be freely remitted outside India. However, the balance held in NRO account is allowed to be remitted outside India up to $1 million per financial year on submission of documentary evidence and payment of tax in India. Remittance exceeding $1 million per financial year requires special permission from the RBI.

At the time of remittance from NRO account, the bank will ask for a declaration in Form 15CA specifying the amount of remittance, the reason for that, and whether the amount is taxable in India. Form 15CA is required to be filed online. 

The bank may also request Form 15CB issued by a chartered accountant certifying that I-T has been paid on the amount that is being remitted outside India. However, such a certificate may not be required if the amount is being remitted outside India by the NRI for the maintenance of his/her family.

Typically, the remitting bank will specify whether Form 15CA and Form 15CB are required for the remittance being made outside India.

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

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