Is it true that NRE income is not taxable in India but only in the country of residence?

— Name masked on request

Interest income from non-resident (external) or NRE (savings and term deposits) accounts earned by an individual is exempt from tax in India, provided the individual qualifies as a “resident outside India”. India” under the Exchange Control Act or a person who has been authorized by the Reserve Bank of India (RBI) to maintain an NRE account. The rules for determining residency status under the Exchange Control Act are different from the Indian Information Technology Act.

Under the Exchange Control Act, when a person leaves India for the purpose of employment or business, or for any other purpose indicating his intention to remain outside India for an indefinite period, she can be considered as a “person residing outside India”. Furthermore, when a person returns to India permanently, he can be considered as a “person residing in India”.

Accordingly, depending on your residency status under the Exchange Control Act or RBI authorization to maintain such an account, interest income from an NRE account is exempt from IT in India. You are required to report the same in the Indian ITR under the exempt income of the schedule as exempt “interest income”.

I am NRI. I have NRO and NRE accounts in India. How do I transfer my savings from my salary (all taxes paid) to Australia?

— Name masked on request

Under the Exchange Control Act, the balance held in the NRE account can be freely transferred out of India. However, the balance held in the NRO account can be transferred out of India up to $1 million per financial year upon presentation of supporting documents and payment of tax in India. Payments over $1 million per fiscal year require special permission from the RBI.

At the time of disbursement from the NRO account, the bank will require a declaration on Form 15CA stating the amount of disbursement, the reason for it and whether the amount is taxable in India. Form 15CA must be filed online.

The bank can also request Form 15CB issued by a Chartered Accountant certifying that IT has been paid on the amount which is remitted outside India. However, such a certificate may not be required if the amount is remitted out of India by the NRI for the maintenance of his family.

Generally, the remitting bank will specify whether Form 15CA and Form 15CB are required for remittance made outside India.

Sonu Iyer is Tax Partner and Head of People Advisory Services, EY India.

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