NRI Taxation
The provisions of the US Internal Revenue Service (IRS) known as the Foreign Account Tax Compliance Act (FATCA) became law in 2010, and will be fully implemented by 2017.
India has concluded an agreement with the US in to implement FATCA provisions.
All Indian and NRI investors need to provide additional details to Indian banks, mutual funds, insurance companies and other financial institutions, as applicable, to ensure FATCA compliance.
This would include a new set of KYC requirements, for institutions to collect and validate this additional information from investors.
NRIs based in the USA need to declare all overseas income, including from Indian investments when filing tax returns with the IRS.
India has signed Double Taxation Avoidance Agreement - DTAA with several governments including the United States.
The objective of DTAA is to prevent double taxation of the same income.
Per DTAA provisions, if tax is paid in India for investment income here, say in the form of TDS,
no tax needs to be paid for the same investment when submitting returns to the tax authorities in the country of investor's residence.
There are several types of bank accounts available for NRIs in India; the most popular are: NRE, FCNR, and NRO.
- Any NRI can open an Non Resident Rupee (NRE) bank account with funds remitted to India through a bank abroad. NRE account funds are freely repatriable to your country of residence. Interest earned from an NRE account balance is exempt from tax.
- In case of Foreign Currency Non-Repatriable (FCNR) deposit account, it is tax exempt if you qualify as an NRI, or not ordinarily resident in India.
- Earned interest from Non Resident Ordinary (NRO) accounts is liable to tax and there are no specific exemptions for tax deduction at source. However NRIs can avail benefit of a lower tax deduction on interest on NRO account under a DTAA. Bank intimation is required to avail this option, along with a copy of tax residency certificate from the country where you qualify as a resident, and other bank specific documents.
Our expert team at Investment Cafe can provide tax guidance for your investments in India, and also assist with claiming applicable DTAA benefits and ensuring adherence to FATCA requirements.
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