25 June 2022 23:06

Tax obligations on foreign term deposits

Is there any tax on NRE fixed deposit?

An NRE Fixed Deposit is exempt from taxation, but an NRO Fixed Deposit is liable for the NRI tax due.  Interest earned on NRE Fixed Deposit is exempt from tax in India but there is TDS applicable on interest earned on NRO Fixed deposit.

Is interest from term deposit taxable?

Under the provision of the Income Tax Act, 1961, the interest earned on FDs is added under “Income from other sources” in your IT return and taxed at the rates applicable. If the interest on your FD exceeds Rs. 10,000 in a financial year, banks deduct a TDS of 10% in case you have provided your PAN details.

Is interest on NRE fixed deposit taxable in USA?

As such, the interest on NRE FD (Fixed Deposit) and/ or NRE savings account is not taxable as per the provisions of Section 10(4) of the Income Tax Act 1961.

What happens to my FD if I become NRI?

It is mandatory: As per the Foreign Exchange Management Act (FEMA) guidelines, NRIs cannot hold resident FDs. They must convert it to an NRO deposit account. There is a penalty if you do not get the conversion done.

Why is NRE account tax-free?

Money in NRE account is fully repatriable outside India. An NRE account is virtually a bank account maintained outside India though actually maintained with Indian banks. As far as taxation is concerned, interest earned on an NRE account is fully exempt under Section 10.

Is NRE account taxable after returning India?

Even after becoming a resident if you continue your NRE account and FDs, then the interest from them will be taxable. Interest from NRE account and FDs are tax-free only for non-residents.

Is fixed deposit exempt from income tax?

An investor can claim income tax exemption on investments up to Rs 1.5 lakh when investing in Fixed Deposits. As part of a Tax Saving Fixed Deposit, interest earned is taxable, which is deducted at source. There are no premature withdrawals, loans, or overdraft (OD) facilities for tax-saving FDs.

How much tax do you pay on Fixed Deposits?

If your interest income from all FDs is less than Rs 40,000 in a year, the income is TDS exempt. On the other hand, if your interest income is over Rs 40,000, the TDS would be 10%. Besides, if you do not have a PAN card, the bank can deduct 20% of TDS.

How much interest is non taxable?

Here, if the interest income is less than Rs 50,000, then the total amount of interest income is tax-exempt. However, if the interest income is more than Rs 50,000 (including interest from all the deposits) then Rs 50,000 is available as a deduction,” he adds.

What is difference between NRI and NRE?

NRE stands for Non-Resident External and you can use it to deposit funds that you earn abroad in a foreign currency. In contrast, you can use a Non-Resident Indian (NRI) account to manage income and funds that are generated in India in Indian rupees.

Is it mandatory to convert to NRE?

The answer to that question is ‘no’. You can reside in one country and continue operating a bank account in India. You would be required to intimate the Bank of change in your residence, after which the bank will ask you to convert the account from INR to NRO/NRE/SNRR.

Do I need to pay tax on foreign income in India?

income tax in India. The foreign income i.e. income accruing or arising outside India in any financial year is liable to income-tax in that year even if it is not received or brought into India. There is no escape from liability to income-tax even if the remittance of income is restricted by the foreign country.

Which is better NRE or NRO?

You should opt for NRE Accounts if you want to hold or maintain your overseas earnings in Indian currency. NRE Accounts are also suitable if you wish to keep your savings liquid. You should opt for NRO Accounts if you want to save your earnings from India in Indian currency itself.

In which section is NRI exempt?

NRIs can claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains when filing a return and claim a refund of TDS deducted on Capital Gains.

How much foreign income is tax free?


The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your FOREIGN EARNED income from US tax. For tax year 2021 (filing in 2022) the exclusion amount is $108,700.

Do I have to pay tax on money transferred from overseas?

Do You Have To Pay Taxes On Money Transferred From Overseas? Generally, yes. You don’t have to pay taxes on international funds under a certain threshold, but if you’re importing a significant amount of capital from overseas, you should expect to pay taxes on your transfers.

What is basic exemption limit for NRI?

As a Non-resident, you still get the benefit of the basic exemption limit of Rs. 2,50,000 from your total income. However, If your total income in India consists of only short term capital gains or long-term capital gains, then the benefit of the basic exemption limit is not available in respect of such gains.

How much NRI is tax free in India?

Income tax exemption limit for NRI taxpayers is up to Rs. 2,50,000. NRIs opting for the new tax regime with lower rates will not be eligible for certain exemptions and deductions (like 80C, 80D, 80TTB, HRA). If they continue to pay taxes under the existing tax regime, NRIs can avail rebate and exemptions.

Which income of NRI is taxable in India?

Rules to determine residential status of NRIs
The Finance Act 2020 reduced this period to 120 days in cases where the total taxable Indian income (i.e., income accruing in India) of such visiting individuals during the financial year is more than Rs 15 lakhs.

Do NRI declare foreign income?

Do NRIs have to declare foreign assets? No, NRIs are not required to disclose their foreign assets and foreign account details. However, in case of NRI income tax, you must furnish information about the foreign accounts to claim a refund of taxes if you don’t have an NRI account.

How can I avoid paying foreign income tax?

If you lived abroad in a foreign country and meet either the Physical Presence Test or the Bona-Fide Resident Test, you may be able to exclude a portion of your foreign earned income from the earned income on your US Tax return, which is known as the Foreign Earned Income Exclusion. For 2018, the amount is $104,100.