I am thinking of returning to India after working abroad for 35 years. I have some deposits in FCNR. I have been advised to convert them into RFC deposits when I return. Like interest on FCNR deposits, is interest on RFC deposits also tax exempt?
—Name withheld on request
Indians returning home have the option to convert their non-resident foreign currency (FCNR) deposits into resident foreign currency (RFC) deposits or accounts, allowing the funds to remain repatriable even after they become residents of India. Non-resident foreign currency (FCNR) deposits can be continued till maturity without the need to convert them into RFC deposits.
The tax exemption on interest earned on FCNR deposits also applies to RFC deposits. This exemption is available as long as the person is a non-resident or a resident but not ordinarily resident (RNOR).
Accordingly, interest on RFC deposits will remain tax-free only till the tax year in which the returning Indian is deemed a RNOR. After that tax year, the interest income will be taxable.
Last year, the Income Tax Department re-evaluated my wife’s case because she was listed as the second holder in my NRE deposits. Would it be better to remove her name as the second holder, given that all the deposits were made from my funds?
—Name withheld on request
Many NRIs face a common problem related to filing of Financial Transaction Returns (SFT) by financial institutions to the tax authorities, particularly for high value transactions.
When the business intelligence platform of the income tax department considers that the information received from various sources is not consistent with the taxpayer’s income profile, it sends the information to the taxpayer for verification before issuing any notification.
In such cases, NRIs can log in to the compliance portal and submit their comments, indicating that the information relates to a different PAN (i.e. the NRI who is the first holder) and also highlighting the relationship with the other person and the corresponding year to which the information relates.
After submitting the information, the responses will be reviewed and considered. To minimize the risk of receiving summons, inspections or reassessment notices for being listed as joint owners, NRIs must file their ITR periodically.
Despite the above approaches, if you prefer to avoid risks, you can remove your spouse’s name as a joint holder and instead designate your spouse as a nominee for your NRE deposit.
—Hashal Bhuta is a partner at the public accounting firm PR Bhuta & Co.
— If you have any queries about personal finance, write to us at [email protected] and get answers from experts.
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