NRO Account and DTAA Benefit

•             Interest earned on NRO deposit is subject to TDS (Tax Deducted at Source) as per Government regulations.

•             The TDS is deducted from NRO interest income for any amount (even for one rupee interest earned).

•             The rate of TDS is 30% plus education cess (at present 3% of the tax). Total effective tax will be 30.90%

•             There are certain countries with whom India has entered into DTAA (Double Taxation Avoidance Agreement). NRIs residing in these countries can avail of lower rate of TDS by submitting  the following each year-

1.            Self declaration

2.            Tax residency certificate from their country of residence

•             The above 'Tax Residency Certificate' can be waived for residents of UAE, KSA, Kuwait, Qatar and Oman where there is no income tax. No DTAA with Bahrain at present.

•             Under DTAA – reduced rate of TDS will be country specific. For example –

             15% - Australia, Canada, USA, UK

             12.5% - UAE

             10% - KSA, Kuwait, Qatar, Oman

•             NRIs can file income tax return along with TDS certificate (with or without DTAA) from Bank thru any Chartered Accountant or directly and claim refund of excess tax. So TDS deducted over and above normal applicable tax can be claimed back.

•             Normal applicable tax rate is

(a)          Up to Rs 1,50,000 – Nil  (Rs 1,80,000 for ladies, Rs 2,25,000 for Senior Citizens of age 65 years and above)

(b)          More than (a) and upto 3,00,000 – 10%

(c)           More than 3,00,000 upto 5,00,000 – 20%

(d)          More than 5,00,000 – 30%

(e)          Plus Education Cess & Surcharge (if applicable)

(f)           Certain Investments can be deducted from income under Income Tax act.

•             If total interest earned by NRO account holder is less than 1.50 lacs (basic exemption limit as above) per year then he need not pay any tax assuming he does not have any other income in India. He need not file Income Tax return also. But banks are bound to deduct TDS and account holder can claim refund from the income tax department by filing income tax return.

•             In the above case, if interest earned is more than 1.50 lacs then account holder must file income tax return even if he does not want refunds/claims.

•             TDS and Tax liability are two different things. If TDS is more than tax liability then the concerned person can claim the refund from Income Tax Department.

•             NRI can apply to the Income Tax Assessing officer for TDS exemption. The officer may instruct Bank not to apply TDS or to apply it at lower rate. Such letter should be obtained every year. Practically it is difficult to obtain such letter. 

 

You can contact (nri. lhotri at sbi. co. in) for any clarification/assistance.