One of the most common causes of confusion among the Non Resident Indian community holding savings accounts in India is regarding tax laws. NRIs are not allowed to hold a normal resident savings account and must choose between either an NRE (Non Resident External) account, or an NRO (Non Resident Ordinary) account. Even though they open either of these accounts, not many are familiar about the tax implications and exemptions with regards to either account. Here’s everything you must know about tax laws for your NRO savings account.
Parking money in NRO accounts
NRO accounts allow you to deposit money in any currency of your choice, whether it is INR or any foreign currency like GBP, EUR or USD. On the other hand, you can only deposit foreign currency in your NRE account.
Tax implications for NRO accounts
If you have funds lying in your NRO account, you do not have to worry about paying taxes. However, the interest you earn on both your NRO savings account and your NRO fixed deposit is taxable under the income tax laws of India. The interest you earn is also eligible for tax deduction at source or TDS. As a result, you are charged taxes at 30.9% including applicable charges.
Consider the following example: If you earned ₹100,000 in the financial year ending 2018-2019 in your NRO account, then your bank will deduct ₹30,900 as interest tax. Furthermore, if the interest earned, either on the fixed deposit or the NRO savings account exceeds ₹1,000,000 (₹10 lacs) in a financial year, you must also pay an additional surcharge of 10%.
Tax Exemption for NRO account
As an NRO account holder, you can seek tax exemption if you are paying taxes in the foreign country in which you are residing. If your country of residence e.g. England, Singapore or USA, has entered into a Double Taxation Avoidance Agreement (DTAA) treaty and you are paying or have already paid the tax on interest earned on your NRO account in that country, you can get a concession on the TDS applied on your earnings. To avail the benefits from DTAA you must submit a tax residency certification (TRC) with a duly filled Form 10F along with your PAN details, without which you cannot avail the TDAA benefit. In case the country you’re residing doesn’t provide the TRC, you must submit
the unique tax reference number with the allotted country identification number.
Is there an alternative?
Since the rate of taxes on interest is high for NRO savings account, you must try to avoid putting any additional money or amounts in foreign currency in this account and opt for the non-taxable NRE account. The smart thing to do is to use your NRO account only to deposit INR earned from rental income or cash gifts from, parents or other relatives.
Parking money in NRO accounts
NRO accounts allow you to deposit money in any currency of your choice, whether it is INR or any foreign currency like GBP, EUR or USD. On the other hand, you can only deposit foreign currency in your NRE account.
Tax implications for NRO accounts
If you have funds lying in your NRO account, you do not have to worry about paying taxes. However, the interest you earn on both your NRO savings account and your NRO fixed deposit is taxable under the income tax laws of India. The interest you earn is also eligible for tax deduction at source or TDS. As a result, you are charged taxes at 30.9% including applicable charges.
Consider the following example: If you earned ₹100,000 in the financial year ending 2018-2019 in your NRO account, then your bank will deduct ₹30,900 as interest tax. Furthermore, if the interest earned, either on the fixed deposit or the NRO savings account exceeds ₹1,000,000 (₹10 lacs) in a financial year, you must also pay an additional surcharge of 10%.
Tax Exemption for NRO account
As an NRO account holder, you can seek tax exemption if you are paying taxes in the foreign country in which you are residing. If your country of residence e.g. England, Singapore or USA, has entered into a Double Taxation Avoidance Agreement (DTAA) treaty and you are paying or have already paid the tax on interest earned on your NRO account in that country, you can get a concession on the TDS applied on your earnings. To avail the benefits from DTAA you must submit a tax residency certification (TRC) with a duly filled Form 10F along with your PAN details, without which you cannot avail the TDAA benefit. In case the country you’re residing doesn’t provide the TRC, you must submit
the unique tax reference number with the allotted country identification number.
Is there an alternative?
Since the rate of taxes on interest is high for NRO savings account, you must try to avoid putting any additional money or amounts in foreign currency in this account and opt for the non-taxable NRE account. The smart thing to do is to use your NRO account only to deposit INR earned from rental income or cash gifts from, parents or other relatives.
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