Concept of NRI different under Fema, Indian income-tax law
August, 02nd 2013
I am a non-resident Indian (NRI) and want to open a non-resident external (NRE) fixed deposit (FD). My deposits will aggregate to Rs.20 lakh (annual interest will be around Rs.2 lakh). Do I need a permanent account number (PAN)?
As an NRI, you can open an NRE bank account in Indian rupees by remitting funds from abroad. For opening an NRE FD account, you will need to submit a photocopy of the pages of the passport containing passport details and personal details, copy of valid visa/work permit, a passport size photograph and one document confirming the overseas address. The address on the document has to match the address mentioned in the application. You can open a joint account with any other NRI by submitting all the documents referred above.
Under the Indian tax laws, interest on NRE deposits is tax-exempt and hence there would be no withholding tax on the same nor would there be any requirement for filing income-tax returns. Therefore, you do not need a PAN card if your only source of Indian income is interest from the FD. However, having a PAN card is recommended since most banks would ask for it as part of the documentation process at the time of opening an account. I am a government of India employee. I work with the Indian embassy abroad for the last two years. Though my salary is calculated in Indian rupees, it is paid in dollars. Will I be considered an NRI or a resident Indian for taxation purposes and why?
The concept of NRI is different under Foreign Exchange Management Act (Fema) and the Indian income-tax law. Under Fema, an Indian citizen or a Person of Indian Origin who stays abroad for employment/carrying on business or under any other circumstances indicating an intention for uncertain duration of stay abroad is a non-resident. Persons posted in United Nations organizations and officials deputed abroad by the central/state governments and public sector undertakings on temporary assignments are also treated as non-residents. Accordingly, you would be treated as an NRI under Fema.
Under the Indian income-tax law, a citizen of India is considered to be a resident if he has stayed in India for 182 days or more during a financial year. So if your stay in India is below 182 days, you would be considered an NRI under the tax law. Hence, it is only the income which is received or is deemed to be received or income which accrues or arises or is deemed to accrue or arise in India is liable to tax in India. Since your salary is paid by the Indian government, the same is deemed to accrue or arise in India and hence is liable to tax in India. However, allowances paid outside India for rendering services abroad are exempt from Indian income tax.