Your Taxes

My son has been employed in the UK from January. In February 2017, he opened an NRO SB a/c in India.

Since then the bank has started deducting TDS at 30.9 per cent retrospectively for the entire period of deposits. All these deposits were made in 2015 out of his earnings in India.

Please let us know if what the bank has done is correct. Also, please clarify if domestic earnings of an NRI is taxable at normal rates after allowing eligible deductions and if he can submit Form 15G to the bank if his income for next financial year will be below the exempt limit.

M Palaniswamy

Based on the limited information, I understand that your son has stayed in India for more than 182 days during FY 2016-17 and went to the UK for employment only in January 2017.

Later, he opened a non-resident ordinary (NRO) bank account in India in February 2017. I am assuming that your son invested in fixed deposits with the bank in 2015 (when he was working in India) and interest income from such deposits is being credited in the NRO account during FY 2016-17.

According to the provisions of the Foreign Exchange Management Act, 1999 an individual going abroad for the purpose of employment qualifies as a person resident outside India (PROI) from the day of his departure.

Accordingly, your son shall qualify as PROI from the date of departure from India for employment. However, considering that your son had stayed in India for more than 182 days during FY 2016-17, he shall qualify as resident under the provisions of Income Tax Act, 1961 (‘the IT Act’).

According to the IT Act, any person responsible for making payment to a non-resident (as per IT Act) of any interest income is required to deduct tax at the time of payment/ credit at 30 per cent (plus education cess and surcharge).

However, in case of similar payments to a resident individual, tax is required to be deducted at 10 per cent. It seems that the bank is deducting tax, considering your son as non-resident.

However, the bank should consider the withholding tax provisions applicable to a resident individual.

Further, I assume that your son will be staying in India for less than 182 days during FY 2017-18 and, hence, shall qualify as non-resident (NR) as per the IT Act. An NR individual is taxable at the same slab rates as is applicable for a resident individual below 60 years and is eligible for similar exemptions/deductions as is available to a resident.

However, a non-resident is not eligible for filing Form 15G and claim benefit of non-deduction of tax on interest income even if his income is below the minimum threshold limit. Your son can apply to the concerned assessing officer for issuance of lower or no deduction of income tax under Section 197 of the IT Act. Once such a certificate is issued, the same should be submitted to the bankers for lower/non-deduction of tax.

The writer is a practicing Chartered Accountant. Send your queries to taxtalk@thehindu.co.in