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Non­-resident ordinary account taxed as per individual’s slab rate

There are no separate rules for income earned on NRO account balances

How does interest earned in a non-resident external (NRE) account get taxed? I know that for a non-resident Indian, it is not taxed by India. But what if the person as per the tax status is resident and ordinarily resident or resident of India?

Interest earned on NRE account is taxed depending on your residential status under the exchange control regulations. If you are a person resident outside India as per the Foreign Exchange Management Act, 1999, the interest earned on NRE account would be exempt from tax.

Since the exemption is based on the residential status under the exchange control regulations, the residential status as per the Indian tax laws should not have any impact.

Q. I have been a non-resident Indian for four years now. While I was working in India, I bought a life insurance policy of Rs.1 lakh to save taxes. I have been regularly paying premium. Since I am eligible to withdraw 20% from the policy after five years, I have decided to withdraw. Do I need to pay taxes on this amount?

Expert Comment: Any sum received under a life insurance policy including the sum allocated by way of bonus on such policy is exempt provided the premium paid for any of the years during the term of the policy does not exceed 20% of the capital sum assured by the policy. If the premium paid by you in any of the years does not exceed 20% of the sum assured, your withdrawal will be tax exempt.

Q. If a resident account is converted into a non-resident ordinary (NRO) account, does it attract the same structure of rate, i.e. an exemption limit of Rs.2 lakh, or are there other rules?

Expert Comment: There are no separate rules for income earned on NRO account balances. The income would be taxable as per the slab rates applicable to individuals.

I am a naturalized US citizen (born in India). I have no bank accounts or real estate in my name in India. My parents are in India. I want to buy them a house. Will any MONEY I send be taxed? The house will be in their names and inherited by my elder brother.

Expert Comment: Where any individual receives MONEY in excess of Rs.50,000 in any FINANCIAL year without any consideration, such MONEY will be taxed as income from other sources in the hands of the recipient.

However, this rule does not apply to MONEY received by any relative, the definition of which includes parents.

Consequently, the money that you transfer to your parents for the purpose of purchasing property in India would not be taxed in India.

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