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A resident’s salary in NRE account is taxable in India

Seamen should check their residential status for tax purposes

Q. I just started my career in the merchant navy. I get my salary in my non-resident external (NRE) account but in Indian rupees. As you know that a seamen comes back to India after completing his contract and waits for another contract. Do I have to pay any tax on that income? Moreover, I want to file my returns in India in the NRE category so that I can take a loan as a non-resident Indian (NRI).

Expert Comment: In the case of a resident Indian, the entire income, irrespective of where it is received or accrued or arises, will be taxable in India. But, for a non-resident, the taxable income is restricted to income that is received in India or is deemed to be received in India, or income which accrues or arises in India or income which is deemed to accrue or arise in India. If you are a resident of India, the entire salary earned by you and credited to your NRE account will be taxable in India. Conversely, if you are a non-resident, the taxability would depend upon whether the salary credited to your NRE account is considered to be received or deemed to be received or accrue or arises or is deemed to accrue or arise in India.

The Agra Bench of the Income-tax Appellate Tribunal (ITAT) in a recent judgment in the case of Arvind Singh Chauhan vs ITO (ITA No. 319 and 320/Agr/2013) held that the income earned by the individual from a shipping company and credited to the NRE account in India is not taxable as the same does not accrue or arise in India and cannot be deemed to accrue or arise in India as the services were rendered outside India. Further, the ITAT held that the income should also be considered to be received outside India as the assessee was in lawful right to receive the salary at the place of employment outside India and as a matter of convenience the salary was thereafter transferred to India.

The relevance and applicability of this judgment would depend upon the facts of your case. I suggest that you consult your tax adviser to understand the implications correctly. With respect to the income tax return of income, you may note that in case you have taxable income beyond the exempt limit of Rs.2 lakh you will be required to file a return of income.

Q. I have been an NRI for 10 years. I started a fixed deposit (FD) in India by transferring money to my sister’s account. Is there any tax implication for the same?

Expert Comment: As the FD was started by transferring money to your sister’s account I presume that it’s in your sister’s name. Hence, the interest earned on it would be taxable as “income from other sources” in your sister’s hands. The bank would have also withheld taxes from such interest income and issued a Form 16A in the name of your sister, the credit of which can be claimed in the return of income filed by your sister.

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