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Feb 10, 2009, 01.12 PM | Source: Moneycontrol.com

Is interest earned on my NRO account taxable?

Our expert, Sandeep Shanbhag clarifies your query on interest earned on NRO account

Sandeep Shanbhag, Financial Planner
I am a Non Resident Indian and have NRO accounts, both saving and fixed deposit. The bank applies tax deducted at source on the interest earned on both accounts though the total interest earned is much below the tax threshold of Rs 110,000.

I have no other source of income in India. How do I overcome this problem? Is there any form I can file to request the bank not to deduct tax at source?

--- Vishwas

Shanbhag says: Form 15-G (for non-senior citizens) or 15-H (for senior citizens), requesting for non-application of TDS is not available for NRIs.
The interest on NRO is fully taxable.

Under the Income Tax Act, it is mandatory for the banks to apply TDS
(= Withholding Tax) on NRO interest, but there is no income threshold under which TDS is not chargeable.

TDS is applicable at 30.9 per cent (plus surcharge, if any) on the entire NRO interest (without any threshold) and nothing can be done in practice, to avoid it. The TDS is applicable on accrual basis on cumulative deposits.

The TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates which again depend upon your income and the exemptions, deductions and rebates you can claim. The TDS can be set off against your actual tax payable and pay only the difference. In case the TDS is higher than the tax liability, you will get a refund.

The writer is Director, Wonderland Consultants, an investment and tax advisory firm. He may be reached at sandeep.shanbhag@moneycontrol.com


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