Arnav Pandya
A lot of people have Non Resident Ordinary (NRO) accounts and it is important for the holders of the account to know the exact tax treatment that will be present for these accounts. There is a lot of choice when it comes to these accounts and the individuals can choose the type of account that they feel will be beneficial for them. They will also need to be aware of the tax consequences of the account and when this is being considered there is also a need to look closely at the manner of any tax deduction that is taking place. All this will have an impact on the manner in which a person deals with the various aspects of this account.
Choice
When it comes to an NRO account there is a lot of choice that is present for individuals. In the case of just depositing and withdrawing money there is the choice of both a current as well as a savings account. Normal dealings where there are not many transactions would normally see a person opening a savings NRO account. The benefit of this is that there is interest earned on the savings account. At the same time there is no interest earned on the current account but it gives the individual the flexibility to undertake a large number of transactions. There is an additional benefit when it comes to the savings account because the individual can also claim a deduction upto Rs 10,000 per year when filing their returns for interest earned on savings account. This is an extra deduction that can be made use of and would benefit the individual.
In terms of investment choices again the individual can open a NRO recurring or a NRO fixed deposit. A recurring deposit allows the individual to put in a fixed sum of money each month and this can continue for the time duration that has been chosen. The good part about the route is that the interest rate can be locked in at the time of starting the account. Similarly there is a choice of fixed deposits that the individual can make use of and put their money away for a specific time period. This will also earn interest and add to the amount that has been accumulated.
Taxation
When it comes to the taxation of the income that is earned on the NRO accounts there is no relief for the individual. The entire amount of interest that is earned on any type of NRO account is taxable in the hands of the individual. This means that no part of the income would be considered as tax free and any amount from the first rupee would have to be included in the tax return of the individual. There is however no cause for worry for the non residents because they can make use of the basic exemption limit which is currently at Rs 2.5 lakh for the purpose of calculation of their total tax liability.
Tax deduction
NRO account holders though could find that they need to undertake extra work to ensure that they get the full benefit of the various tax provisions. There is a rule that says that there would be a tax deducted at source for the income earned on the NRO accounts. There is no figure after which this would come into effect and hence any amount earned from the first rupee would be taxable. At the same time the tax deduction rate is 30.9 per cent so this is also quite high. There are some conditions under which a lower rate might be applicable but the individual would need to check this with their respective banks. This might make the need for filing a tax return and getting a refund essential for the individual.
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