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Redesignate NRE account on returning to India

Exemption on interest earned from NRE account is available until you are non-resident

Q. I have a fixed deposit (FD) with a bank in a non-resident external (NRE) account. In case I return to India before maturity of the FD, do I have to pay income tax on this? If so, how will it be calculated?

Expert Comment: Upon your return to India, you will have to re-designate your NRE account as a resident account or the funds held in the account may be transferred into a resident foreign CURRENCY (RFC) account (if you are eligible to open and hold an RFC account) immediately after your return.

The exemption on interest earned from NRE account is available until you are non-resident under the exchange control regulations.

However, interest that is earned on RFC accounts held with any scheduled bank will be exempt so long as you are a resident but not ordinarily resident in India.

In any other case, the interest earned by you will be chargeable to tax in India at the slab rates applicable to you.

Q. I want to INVEST in FDs from the foreign transfers accumulated in my non-resident ordinary (NRO) account. Will my interest from FDs be taxable in India?

Expert Comment: Interest earned from deposits in an NRO account is taxable in India. However, NRIs have been provided with concessional tax provisions under which INVESTMENT income derived from deposits made with banks that are public companies, by remittance of convertible foreign exchange is taxable at the rate of 20% (plus applicable surcharge and education cess). If you choose to be governed by these concessional tax provisions, you will not be required to file returns provided your total income comprises of only investment income and long-term capital gains, and appropriate taxes have been deducted at source.

Further, depending on your residential status and the country of which you are a resident, you may also be eligible to claim benefits, if any, under the double taxation avoidance agreement. You could consult your tax adviser to understand the specific tax implications.

Q. I am a non-resident Indian (NRI) and have owned a residential property in India for more than 10 years. I sold the property to a resident last year. Is there any benefit of indexation available to me?

Expert Comment: Yes, you could avail the benefit of indexation on the residential property sold by you as you have held the house property for more than three years from the date of purchase.

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