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Balwant Jain

Tax and Investment Expert ,

All you wanted to know about Nro, NRE and FCNR accounts

 

Questions Answered

Q

guest: I am an Indian working in Qatar, since last year. I have been forwarding my monthly salary to my old savings account in India. till last year by the end of March my total savings were around 30 lakhs in my savings account. My mistake was that I did not open any nro/nre account. Now I am opening the account and this amount will be transferred to my NRO account once accounts get opened. I would like to know what the tax implications are? will I have to file tax returns?

Balwant Jain: Under the FEMA provisions a person becomes a non-resident as soon as he boards the plane/ship to go abroad to take up an employment or to start any business outside India or even for any purpose with an intention not to return to India for indefinite period. So you became a non resident the day you left India and So ideally you should have intimated your bank about you having taken up employment outside India and the bank would have designated your existing account as NRO account. You need not open NRO account afresh, just intimate your bank that you have become a non-resident with a request to designate your existing bank account as NRO (Non Resident Ordinary account). Though you have technically not complied with the FEMA requirement strictly but this happens with almost all the people who take up employment outside India. It does not have any income tax implications. The interest on NRO account is taxable in India.
Q

guest: I have been an NRI since 2000 working in Oman. I have invested around Rs. 15 lakhs in various mutual fund schemes in India from my existing NRO account. Now, I wish to redeem all the investments in mutual funds and invest the money in an NRE-FD. I would like to know the regulations and requirements to transfer the amount from my NRO to NRE account.

Balwant Jain: As per RBI guidelines an NRI can transfer funds abroad from his NRO account up to a maximum of USD 1 million per financial year without seeking any specific permission from RBI. This includes transfer to his NRE account as well. Since the amount which you want to transfer from your NRO account to NRE account does not exceed 1 million USD, you do not need any special permission and can do so. However for transferring the amount from NRO account to your NRE account, you will need to produce a certificate from a Chartered Account certifying that the taxes in respect of the money which is being transferred from NRO account to NRE account have been paid. The certificate will still be needed even in cases money is being retransferred from NRO account to NRE account. This certificate is issued in form No. 15 CB and your application for such transfer has to be in form No. 15CA. So after paying the taxes on your investments in mutual funds in case there is any tax liability, you can remit the money.
Q

Sunil Khandelwa: Is it beneficial to invest in Mutual funds NRE account via-a-vis NRO account. It yes what are the advantages . Is it also beneficial in taxation.

Balwant Jain: The only benefit of investing in mutual fund through your NRE account is that you can fully repatriate the sale proceeds after payment of applicable taxes on capital gains. Tax rules for taxation of profits on mutual fund are same for resident as well as for non resident and whether you invest from NRO account or NRE account.
Q

kiU7d2gEpT: Hello Sir, I have bought a house in December 2021 using home loan. I already have another house in my name since June 2005 without loan. If I repay my home loan on my second house, with the sale proceeds of my first house, do i have to pay tax on LTCG on my first house sale. I am in 20% tax slab. I am nt an NRI. Sorry my question is not related to nre account. But you are an tax expert. Please help.

Balwant Jain: There is no exemption from tax on capital gains if you utilize sale proceeds of a house to repay an existing home loan. However if you are able to sell the first house within one year from purchase of the second house, you will be able to claim exemption from long term capital gains tax to the extend the indexed capital gains are invested in the second house.
Q

guest: I am an NRI and I have invested my foreign income in a residential property in India. I have given that property on rent, which is being deposited into my NRO account in a bank in India. Now I want to repatriate the rental income abroad. I am regularly paying income tax on the rental income. I have filed the income tax returns showing the source of income as foreign money for acquiring the property. Please advise me of the procedure to regularly repatriate the rental income abroad.

Balwant Jain: A non-resident is allowed to remit upto Rs. 10 lakh USD every year without seeking any specific permission from the RBI. However you will have to submit necessary forms 15CA and 15CB under income tax laws before remitting the money. You submitting these forms you need to take help of a practicing Chartered Accountant.
Q

Rishi Narang: Can u explain the difference between these accounts and hw someone who will shift abroad in 6 months utilise these accounts fr keeping funds

Balwant Jain: An NRO account is either an existing bank account which gets designated as NRO account when one becomes a non resident or which can be opened a fresh after becoming a non resident. Interest on it is fully taxable in India. Any money can be deposited in this account. NRE account is an account which is treated as if maintained outside India and only money received from outside India can be deposited in it. Interest on this account is tax free. FCNR (Foreign Currency Non Resident Accoount) is a fixed deposit NRE account maintained in permitted foreign currency. This helps the non resident against depreciation of Indian currency. Interest is tax free in India. Money from FCNR/NRE account can be freely transferred to NRO account but not vice versa. This is just gift else it requires three separate articles to explain all these three accounts.
Q

guest: One of my relatives has recently become an NRI. Can he continue to contribute to the PPF account now? His bank accounts are yet not converted as NRI as he is likely to return to India after 7 /8 months or so. Can contribution to PPF be made from his foreign income transferred to India in his Savings account in Indian rupee?

Balwant Jain: A non-resident cannot open new PPF account nor he can extend it beyond its currency validity.. However non residents are are allowed to continue to invest in the PPF account after becoming non resident. The contribution can be made from any source : Indian account or by transferring money to his saving account in India. He should immediately inform the bank about change in his residential status and get all his bank accounts designated as NRO even if he has gone out for only limited period. Once he comes back he can get his NRO accounts redesignated as ordinary accounts.
Q

guest: I am a NRI, residing in UAE. During May 2022, I took a personal assistance loan from UAE bank (for purchasing property and remitted in my NRE rupee account). Later I withdrew money from my NRE (About INR Rs 22 lakh) and kept the money in the custody of my parents to purchase land. Now, since my plans have changed and we are in the process of immigrating to Australia, I want to take the money to Australia. Could you please advise whether it is possible? If so, what is the procedure to repatriate the whole amount? I have the evidence of my bank transaction statements. Is this sufficient to get the money repatriated?

Balwant Jain: A non-resident can remit upto ten lakh USD every year from India subject to complying with certain procedure like filing form 15 CA and 15CB. You need to take help from a CA for filing these forms.
Q

guest: Want to know if it is necessary to have an NRE account to have a home loan in India. According to information from some private banks , I learned that a NRE account is a must. I live in Malaysia for a job and wish to purchase a home in India. I send money to my savings account through legal channels. Can we show that as a proof of transaction from outside India ?

Balwant Jain: No. It is not necessary for you to have an NRE account in India to get a home loan.
Q

Sunil Khandelwa: One of the provisions for duration of stay in India in one year is that your taxable income should not exceed Rs 15 Lacs. this angle it is advantageous to transfer funds NRO account to NRE account on which interest income is tax free. Is my understanding correct?

Balwant Jain: You are mixing up income tax laws with FEMA laws as far as conditions for becoming a non resident. This income criteria of 15 lakhs income is applicable under tax laws and not FEMA. The banking and investments transactions are regulated by FEMA provisions.
Q

guest: I am a NRI resident; I have interest income from NRE deposits; also, last year I earned nearly 20 lakhs as short term capital gains from equity shares on which TDS was deducted already; do I need to file an income tax return?

Balwant Jain: As per Section 115G of the income tax act an NRI does not have to file his return of income if the total income of such NRI includes only investment income or long term capital gains and tax has been deducted at source on such income. Though the interest on NRE deposits is exempt under Section 10 (4) of the Act and since few of the income tax tribunals have held that short term capital gain is covered by the definition of investment income in my opinion you are not required to file your income tax return. I would still advise you to consult a Chartered Accountant as the matter is not so simple.
Q

guest: We are NRI. We have sold our house on which capital gain is 50 lakhs. We will deposit this money in an NRO account , and invest in 54EC bonds . After 5 years we want to repatriate that amount ( 50 lakhs interest ) back to the USA. Can I do so?

Balwant Jain: As per the FEMA rules a non-resident under FEMA is allowed to remit upto 10 Lakh USD every year from their NRO account without having to seek permission from RBI. TYou need to file certain forms while remiting the money for which I would advise you to take help from a CA.
Q

guest: I want to invest Rs. 10 lakhs in fixed deposit @ 9 % for 5-10 years from NRO ACCOUNT. how will be tax structure-i do not have other income in India.

Balwant Jain: If you invest money in Bank Fixed Deposit from your NRO Account, in that event the income would become taxable in your hands and will be added to your Indian income. Moreover, if your total Indian income exceeds the exemption limit, you have to pay income-tax and file the Income-tax Return.
Q

guest: I am 61 years old NRI. My income from NRO bank deposits is 3 lacs per year. Please let me know my tax liability. My banker is deducting TDS from my interest. Please let me know how I can stop this.

Balwant Jain: The interest income from NRO Bank Deposit amounting to Rs. 3 lakhs will be subjected to income-tax. Your bank is correctly deducting TDS. You may apply to the Income-tax Officer requesting for a certificate for payment of tax at a lower rate because the tax liability would be lower on your income and there-after submit the said certificate to the bank.
Q

guest: I am a person of Indian origin based in the UK. I want to lend some money to my sister who lives in India. Is it possible and what will be the tax implications, if any? Also please tell me that is there any limit to the lent amount?

Balwant Jain: Yes, you can lend money to your sister who is an Indian resident to if the tenure of the loan is not more than three year. The interest if any shall not exceed 2% over bank rate. The money is remitted by you to India in in free foreign exchange through normal banking channels or by debit to your NRE/FCNR(B) ac-count. The amount can not be repatriated outside India. There are no tax implications for this transaction for either of you.
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