There are several tax benefits that the NRIs can avail of through opening various NRI accounts. The bank deposits including are free from wealth tax in India. Interest earned on NRE, FCNR and NRNR accounts are exempted from Indian income tax.
Additionally, gifts made out of NRE, FCNR and NRNR accounts are free from gift tax in India (in the case of the NRNR account, the gift tax exemption is available only for one time gifts). As per the latest guidelines, NRNR deposits are no longer permitted, the existing NRNR deposits can be converted to NRE on maturity.
After the permanent return of the NRI, NRE/FCNR deposits with banks registered in India and investments in government securities and company debentures out of foreign exchange funds are eligible for a flat income tax rate of 20% on their income.
The concession will be available till the maturity of these investments. On the permanent return to India by an NRI, he/she may choose to invest the balances in his NRE/FCNR deposits in RFC accounts.
Alternatively, he may allow these accounts to be converted into Resident Rupee accounts (FCNR deposits may be continued to be maintained, till maturity, at the contracted rate of interest).
The income from Resident Rupee accounts is taxable from the date of the NRI's return to India. An NRI has the option of having this income taxed at a flat rate of 20%; however he will not be eligible for any deductions.
Finance Act 2003 provisions require returning Indians to be a non resident in India in 9 of the 10 previous years or he has not during the 7 preceding years been in India for a period amounting to 730 days or more. It also restricts the tax benefits of NOR status to a two year period as against the previous exemption of 9 years.
For non residents all income earned in India is taxable.
Any person responsible for making any payment (except dividend declared after 1.6.97) to a non-resident individual or a foreign company is required to deduct tax at source at the prescribed rate at the time of credit of such income to the account of the payee or at the time of payment thereof. The rate at which tax is to be deducted at source will be the rates as specified in the Finance Act.
For certain remittances, the Reserve Bank of India Exchange Control Manual requires production of a no objection certificate from the Income tax authorities. The Central Board of Direct Taxes, vide circular No.759 and 767, has simplified the procedure by dispensing with such requirement. The person making the remittance has only to furnish an undertaking (in duplicate) addressed to the assessing officer which should be accompanied by a certificate from a Chartered Accountant in the prescribed form. The undertaking should be submitted to the Reserve Bank of India or the authorized dealer in foreign exchange who will forward a copy to the assessing officer.
The following investment income arising to Non-resident Indians (NRIs) are exempt from tax:
NR SAVINGS RATES