A returning NRI who has opted to be Resident but Not Ordinarily Resident (RNOR), has earned the following types of income for a particular assessment year: interest from FCNR deposits, interest from resident foreign currency account and interest from NRE account. What will be the tax liability?
Amit Maheshwari Partner, AKM Global replies: Your query has to be looked at from the perspective of the type of accounts that you can maintain under the provisions of the Foreign Exchange Management Act, 1999 (FEMA). As per FEMA, an individual is a Person Resident in India (PRI) if he has resided in India for more than 182 days during the preceding financial year and has come to India for the purpose of employment or business or any purpose indicating the intention to stay in India for an uncertain period. Hence, intention to stay in India is a determinate factor.
Assuming that you have returned with the intention of staying in India for a longer period, you can only maintain a RFC account out of the three you have mentioned. The interest from RFC account shall be exempt only till the year your residential status is non-resident or RNOR under the provisions of the IT Act. Once you become an ordinary resident, the interest will be added in your taxable income. You can hold the FCNR deposits till maturity, however, those will be converted to resident deposits and the taxability of interest on these deposits shall have the same treatment as RFC account.
If you continue to hold NRE and FCNR deposits in the same form, the interest will still not be exempt, because Section 10(15)(fa) provides the condition that such accounts/deposits must be approved by the RBI and holding these accounts would violate this condition. However, if you don’t intend to stay in India for long, you can maintain the status of Person Resident Outside India under FEMA but you cannot keep an RFC account and it is ordinarily converted to NRE account. The interest earned on NRE account and FCNR deposits shall be exempt from tax in India.
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