FEMA defines a “person resident outside India” as somebody who is not a “person resident in India”
I have been overseas for several years and had opened an NRE fixed deposit with a bank in India. I relocated back to India during May 2016 and took up employment with an Indian firm in October 2016. I have been staying in India since May 2016 and has liquidated all his NRE tax-free bank fixed deposits prematurely during March 2017. Please tell me if the interest earned on the NRE fixed deposit (FD) during the financial year (FY) 2016-17, is taxable.
The exemption of interest on non resident (external) accounts – both NRE savings accounts and NRE fixed deposit accounts - is governed by the provisions of section 10 (4) (ii) of the Income Tax Act. Under those provisions, the interest for the financial year 2016-17 will be exempt only if you have been a person “resident outside India” for the concerned fiscal year under FEMA.
FEMA defines a “person resident outside India” as somebody who is not a “person resident in India”.
The client would be a “person resident in India” as per clause (v) of section 2 of FEMA as he has come to or stays in India in the FY 2016-17 for the purpose of taking up employment in India despite not having stayed for more than 182 days in FY 2015-16. The definition of “person resident outside India” is worded with reference to a “preceeding year” and has a triple negative definition making it extremely confusing.
It is absolutely clear that it is Reserve Bank of India (RBI)’s intention to treat such a person as resident in India based on the provision made by it under regulation 7 of Schedule 1 to Foreign Exchange Mangement (Deposit) regulations 2000 dealing with Non-Resident (External) Rupee Account Scheme which clearly provides “NRE accounts should be redesignated as resident accounts, or the funds held in these accounts may be transferred to the RFC accounts (if the account holder is eligible for maintaining RFC account) at the option of the account holder immediately upon the return of the account holder to India for taking up employment or for carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period. Where the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in India.”
This makes absolutely clear how RBI interprets this section and a person should not treat this interpretation (which also otherwise makes common sense) lightly.
Consequently, it follows that the interest for the financial year 2016-17 will be taxable in India irrespective of when the NRE Fixed deposits were pre-maturely withdrawn or when the NRE fixed deposits are redesignated as regular resident fixed deposits.
I have read an article by you published in DNA Money. With reference to the article, I need clarification on certain points. My loan was sanctioned on January 13, 2016, the first disbursement was done on January 30, 2016, and the deed was registered on July 15, 2017. My income is Rs 4.97 lakh per annum. My first pucca house has a carpet area of 640 square feet. I am unmarried and no female member is included the in property ownership or loan property. Now, I wish to avail the benefit by including my mother as a co-owner of the property. For that, I approached LIC Housing Finance Ltd (LICHFL) and National Housing Bank. However, there is no clarity on the procedure or documents if it permissible or possible. So, need your help with any documents for government as neither I was aware of such a scheme nor LICHFL informed me about the same.
-Abhishek Deshmukh
When you try to retrospectively fit a proposal to gain a subsidy from the government which it self is something new there is bound to be a great degree of confusion . The banks are merely channelizing agencies for the subsidy provided by the government. Please first find out if the flat you bought is in a project that is treated as an affordable housing project. You can find out from your lender whether other buyers who are now buying in the project will be eligible for the the credit linked subidy or not. If they are then it is worthwhile for you to pursue this further. You can try and convince your lender to permit you to add your mother as a co-owner in the flat and then apply to the channelizing agency for the subsidy. If they manage to get it they are required to compulsorily credit it to your account. Unfortunately this is the best that I think you can do at this stage.
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