Q.1060 NRE Account Status of

interest exemption on return to

India

Question: Good evening, I was an NRI, employed with a Bank in Dubai continuously from 1994 to July 2016. I have a few questions to be clarified, narrated below: A) All my End of Service Benefits were repatriated from Dubai on 20th July 2016, with Value Date 22nd July 1996. Instructions were given to my Bankers in India giving full particulars of remittance to set up NRE FDs. They set up the FDs with the funds on 22nd July, 2016. I wound up my activities in Dubai, and returned to India by the evening flight of 22nd July which landed before 11.59 pm. Hence, the Passport carried the Date of Entry as 22nd July 2016. Considering the fact that Funds were repatriated on 20th July with proper instructions to set up NRE FDs., and having the RNOR status (having stayed outside India continuously for 22 years); does it carry the NRE Deposit status till the maturity period ? B) I had various NRE FDs in Banks, the validity of which expire by 2017/2018. Can I enjoy the benefit of NRI status on these deposit interests till the maturity period? C) Banks are demanding the completion of KYC. Since I have returned to India on 22nd July 2017, should I convert the status of my NRE Accounts to Resident status ? If so, can my Bankers retain the existing NRE FDs maturing over the coming two years ? Appreciate an early response, Thanks & Regards, Sukumar Answer: Interest on NRE savings accounts held by NRIs is exempt from tax in India as per Indian tax laws. However the tax exemption is available only until the account holder remains non-resident. Once a NRE account holder becomes a resident then the tax free status ends. Under FEMA regulations the day a person returns to India with the intention to stay in India, they are considered to be resident.

Status of NRE FDs on Return to India

NRE account FDs are allowed to continue until maturity date. However, • Only the interest portion until the date of your return will be tax free. • You must calculate the interest received from the date you returned to India with the intention of staying in India until maturity of FD and that amount would be taxable in India. • NRIs on return to India have the option to transfer FCNR and NRE deposits to a Resident Foreign Currency Account (RFC) • Interest on RFC account/deposit is exempt from tax as long as account holder qualifies for RNOR status. • RFC Accounts can be held in the form of savings, current and term deposit accounts. There is no way to avoid KYC these days. Once you are a resident then you need to get your non-resident accounts re-designation to resident bank accounts. As mentioned above RFC is an option returning NRIs can consider.