The Reserve Bank of India (RBI) has deregulated interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident (NRO) accounts on Friday, to provide banks better flexibility to mobilize such deposits in view of the prevailing market conditions.

Banks have been given the liberty to decide interest rates on both savings deposits and term deposits, having a maturity of one year and above, under non-resident external rupee deposit accounts and savings deposits under ordinary non-resident accounts with immediate effect, it said.

The Reserve Bank of India’s move to free interest rates on Non-Resident Deposits has triggered a rate war among banks. Laxmi Vilas Bank is offering 10% on one-year deposits as against 3.82 earlier. Mangalore-based Karnataka Bank which has hiked one-year returns to 9.75%.

Kerala-based Federal Bank was the first to respond hiking rates on one-year NRE deposits to 6.5% from 3.82%. Meanwhile another Kerala-based lender South Indian Bank has said that it would offer non-residents 6.75% for deposits up to one year and above.

Federal Bank which has one of the largest shares of non-resident deposits among banks in India has said that it has seen a surge in deposits after interest rates rose sharply during the current fiscal. The bank’s NRI deposits had risen by as much as 40%.

Late evening on Friday, RBI said that it has deregulated interest rates on non-resident (external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts. RBI said that it has decided to deregulate interest rate on NRI deposits to provide flexibility to banks to raise deposits. “Banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under NRE deposit accounts and savings deposits under NRO accounts. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits,” RBI said.

Among other lenders Dhanlaxmi Bank said that it was reviewing its interest rates on NRI deposits but has not yet taken a decision. DCB Bank’s Murali Natrajan said that his bank was also reviewing rates on NRE deposits.

Here are several exemptions and tax-saving suggestions that non-resident Indians can take advantage of :

You don’t need to to file for tax return if you don’t have any income here. Alternatively, if the income accumulating in India by means of capital gains, rent, dividend or interest is beyond the threshold limit, you will need to file tax returns. Here, at the same time, you can claim certain deductions. So, for 2011-12 , an NRI (male, below 60 years) whose income is greater than 1.8 lakh and a person above 60 years who earns more than 2.5 lakh should file returns in India.

You don’t need to to file for tax return if you don’t have any income here. Alternatively, if the income accumulating in India by means of capital gains, rent, dividend or interest is beyond the threshold limit, you will need to file tax returns. Here, at the same time, you can claim certain deductions. So, for 2011-12 , an NRI (male, below 60 years) whose income is greater than 1.8 lakh and a person above 60 years who earns more than 2.5 lakh should file returns in India.

Investments

If, as a resident, you made some investments and redeemed them after becoming an NRI, these will be dealt with differently . For example, NRIs are not able to extend the tenure of their PPF account. Capital gainslong-term or short-term-will be applicable when you redeem/sell your past investments. If you sell shares that are listed on a recognised stock exchange in India after keeping them for over a year, you will not have to pay tax on the capital gain provided the securities transaction tax has been paid.

Tax-saving tips

NRIs can save on these taxes by investing in pension plans, life insurance policies and tax-saving mutual funds. The reimbursement by an NRI towards principal amount of home loan is eligible for deduction up to 1 lakh, while the interest payment is also allowed as a deduction. NRIs can also buy a health insurance policy here for themselves, their family and dependent parents , and claim deduction up to 35,000 for the annual premium paid. If you have been repaying an education loan, the interest paid can be claimed for deduction . NRIs can put their money in tax-saving bonds too. Capital gains up to 50 lakh earned from selling a capital asset can be invested in bonds of NHAI or REC. Investment income foreign currency bonds, are subject to tax at 20% as against the maximum rate of 30%. NRIs can invest in such assets and benefit from the lower rate. Also, an NRI can avail of lower tax rates on interest income through beneficial treaty provisions.

Students overseas and their parents in India find it hard to budget for their expenditures because rupee sounds like being in a free-fall zone vis-a-vis the US dollar.

Indian students wanting to study in the United States or those currently studying there are not sure of what they ought to be prepared for. While some estimated the declining rupee value as a primary reason for abandoning intends to study in the US, some who had plans to finance their studies on their own are now checking out loan options.  Those people studying there are concered about searching for a part-time job to survive.

Rashmi Saha from Pune has stopped thinking about her dream degree from a US university after getting a visa. While she points out three important causes for cancelling her plans, the falling rupee rate figures at the pinnacle. “The college I got admission to is not very popular. It will be hard for me to search for a job there after my programme is finished or even throughout the course of my studies. The dollar has grown so expensive, that it’s going to be difficult for me to manage myself there. So I have dropped plans for the time-being ,” said Saha.

A resident of Koparkhairne, Swaroop Narayanan, who is aiming to study MS in electrical engineering from a US university, now plans to seek out a loan for his studies. “My family planned to finance the first year of my education in the US. However, now with the decreasing rate of the rupee, I prefer to approach a bank for an education loan. Even daily living expenditures will go up. My parents are employed in the service sector. Initially we agreed on them financing the first year, but now we don’t know how much it’s going to come to by the time I start with the course. So we might think about the loan option,” said Narayanan. “Since the rupee value is decreasing every day, we do not know exactly where we are going to,” he added.

Parents of another student from Ghatkopar, Bhavin Shah, had plans to keep Rs 5 lakh in store for additional costs the family may incur due to the falling value of the rupee.  However, when they started making an application for a course in July, the fees and living expenses were springing up to Rs 19 lakh. Five months later, their expenses have gone up to Rs 22 lakh. “We do not know where it’s going to stop. The Rs 5 lakh we kept for variations may be used up if the rupee falls to Rs 55 vis-a-vis the dollar. We are expecting it to reach that level by the monthend ,” said Shah.

The largest umbrella organization of overseas Indians has urged the Indian government to remove a proposal to impose tax on non-resident Indians (NRI) staying over 60 days during a visit to the homeland.

It’s going to be detrimental to the interests of NRIs who make contributions considerably to the country’s progression, the Global Organization of People of Indian Origin (GOPIO) stated in a resolution adopted during its biennial conference in Iselin, New Jersey earlier this month.

In various other resolutions, GOPIO made a plea for a mechanism to enable NRIs to voice their issues, nomination of a few prominent NRIs to the Rajya Sabha, initiation of suitable actions to set up fast track courts to deal with the increasing number of property offences aiming for NRIs and steps for quick disposal of cases involving custody of children of NRI parents.

In addition, it urged the government to augment the staff strength of consulates for the ease of NRIs.

While welcoming the establishing of Global Advisory Council, GOPIO looked for representation for diaspora organizations in the council.

Extending all support to the” Know India Program” begun by the government, it wanted a GOPIO-Pravasi member committee to be established to kick-off the programme.

Observing that more and more job hunters from India are falling prey to unscrupulous elements abroad, GOPIO urged the government to have proper actions for the rehabilitation of such victims.

The organisation also urged the Government of India to finish the discriminatory practices against NRIs at archeological sites and hotels.

GOPIO has also expressed special thanks to the authorities in Bahrain to have prompt steps to safeguard the Indian community during the recent disturbances.

In this informative article we look at what an NRI are able to do to claim this lower rate of TDS as well as to have an exemption from TDS. There are two circumstances in which you could be eligible for TDS exemption:

1. If the DTAA between the country of your residence and India permits a lower rate of TDS

2. In case your total earnings are less than the basic exemption limit of Rs 1.6 lakh

Hence the next question for you is: What exactly does an NRI have to do so that you take the advantage of this kind of exemption or reduced rate of tax?

If the DTAA between the country of your residence and India permits a lower rate of TDS

We observed that regarding specified incomes such as interest income or royalty income, the DTAA for US and UK allows a reduced rate of TDS for NRIs. For example, just in case of interest income, while TDS is deducted at 30 percent for NRIs, in which there is a DTAA, the TDS rate is reduced to 15 per cent.

At the same time, you will find there’s complete waiver of TDS in case of fees for professional services. So in case you are an NRI providing services to someone in India and so are receiving payment thereof, you can acquire a waiver of TDS.

On the other hand, if you want to claim the reduced rate of TDS or waiver of TDS under the DTAA, you’ll have to submit a tax residency certification from the country of your respective residence. This is going to certify that you are a tax paying resident in that other country and that tax on that income is being duly paid in that country, confirming absolutely no leakage of tax revenue for either countries.

In the US, the tax residency certificate is called Form 6166 and the application needs to be made to the Internal Revenue Service (IRS) in Form 8802. Complete information of this process are available here.

In the UK you’ll have to get the tax residency certificate from the HM Revenue and Customs.

If your total income is lower than the basic exemption limit of Rs 1.6 lakh

It could happen that your particular total income in India is less than the fundamental exemption limit of Rs 1.6 lakh per financial year. In these cases, you may apply to the Income Tax Officer in your jurisdiction in India, asking for  a waiver of TDS. If the Tax Officer grants you the waiver, you may submit this to the payers such as your bank and claim TDS exemption.

“Approving waiver depends on the discretion of the Tax Officer and may or may not come through easily. So In case you are suffered with such a scenario, it is advisable to file your tax returns and claim a refund of the TDS,” recommends Sandeep Shanbhag, Director – Wonderland Investments and an expert in all NRI financial and taxation matters.

Keep in mind that any claim for reduced rate of TDS or exemption from TDS is going to be accessible so long as you’ve got a Permanent Account Number (PAN), so make sure you have one.

Non Resident (External) [ NR(E) ] are governed by the provisions of Foreign Exchange Management (Deposit) Regulations, 2000.A Non Resident External account can be opened and maintained by a citizen of India or a person of Indian origin residing outside India as also Overseas Corporate Bodies (OCBs). The accounts are convertible / repatriable and are  maintained in Indian rupees in the form of savings, current and recurring or fixed deposit accounts.

The Non-resident Indians (NRIs)are permitted to open and maintain these accounts with authorised dealers, and with banks (including cooperative banks) authorised by the Reserve Bank to maintain such accounts.The account should be opened by the non-resident account holder himself and not by the holder of the power of attorney in India.

Note: Opening of NRE accounts in the names of individuals/entities of Bangladesh/Pakistan nationality/ownership requires approval of Reserve Bank.

To know in detail about more feature or regulation regarding NRE account  please submit your query contact us

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