NRO deposit is “foreign exchange asset” subject to TDS @20 percent

March 7, 2008 at 6:23 pm (Tax)
Tags: income tax, india, non-resident, TDS

NEW DELHI. Authority for Advance Rulings(Income-Tax) vide a ruling dated 3^rd March  2008 AIT-2008-80-AAR has ruled that the NRO deposit to be made by the applicant with convertible foreign exchange in a banking company which is not a private company, shall be treated as ‘foreign exchange asset’ under clause (b) of Section 115C of the Income Tax Act of India. Further, income by way of interest earned from the said NRO deposit shall be treated as ‘investment income’ under clause (c) of Section 115C and shall be liable to be taxed at the rate of twenty per cent under section 115E; and the banks paying interest on the NRO deposit of the applicant are required to deduct tax at source (TDS) at the rate of twenty per cent.

The applicant, left India on 23 April, 2007 and is living in the Kingdom of Saudi Arabia. As he has spent more than 182 days outside India, he has claimed the status of a non-resident individual for the financial year 2007-08, corresponding to the assessment year 2008-09. He proposes to open a Non-resident Ordinary deposit (NRO account) with banks in India with the help of remittances from Saudi Arabia.

The applicant sought advance ruling of this Authority on the following questions:-

(i)            Whether the non-resident ordinary (NRO) deposit acquired with convertible foreign exchange can be treated as a ‘foreign exchange asset’ under section 115C of the Income-tax Act, 1961?

(ii)           Whether the interest on such NRO deposits can be treated as ‘investment income’ under sec. 115C of the Income-tax Act, 1961 and liable to be taxed at 20% only under sec. 115E?

(iii)          At what rate tax is required to be deducted at source by the person responsible for paying such interest?

(iv)          Whether form 15G can be accepted by the Banks?

(Source: Allindiantaxes)