Taxation in NRO accounts and DTAA provisions

Non-Resident Ordinary Rupee (NRO) Account is a mode used by Non-Resident Indian/ Person of Indian Origin/ Overseas Citizen of India to maintain rupee account in India. Income originating from India (interest, salary, rent, dividends, etc.) is also deposited in such account. NRO account has restricted repatriability, that is, permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking (Form 15 CA) along with a certificate from a chartered accountant (Form 15 CB), as applicable

Interest income:

Interest earned on NRO account is taxable as per the provisions of Income Tax Act, 1961 (Act) or as per DTAA provisions between India and country of residence of the customer, whichever is more beneficial. The rate as per the Act is 30% plus applicable surcharge and cess, depending on the amount of income earned in a financial year. The rate as per DTAA may range between 10% – 15%, provided prescribed documents are in place. Presently, the documents prescribed are tax residency certificate, Form 10F (format issued by Indian income tax authorities), declaration confirming no permanent establishment in India and PAN/ Tax Identification Number in the country of residence, along with other prescribed details.

Normally, the customer would be able to claim credit of taxes so deducted subject to conditions given in the applicable DTAA and local laws in the country of residence.

PAN guidelines for NRIs:

Effective January 1, 2016, income tax has made it mandatory to obtain PAN/ Form 60 (format issued by Indian income tax authorities) from a non-resident customer also if it enters into certain specified transactions with the bank (for example, opening a bank account/ demat account, cash deposits/ time deposits or sale or purchase, of goods or services of any nature exceeding prescribed limits, etc.)

If the taxable income in India is above the basic threshold limit, Form 60 needs to be accompanied with PAN application details and proof of such application. On the other hand, if the taxable income in India is below the basic threshold limit, Form 60 may be accepted without such PAN application details.

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To know income tax slabs relevant for Assessment year 2017-18

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