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New tax certificate rule for NRO account holders

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by Rejimon K , Muscat: Non-resident Indians (NRIs) who hold Non-Resident Ordinary (NRO) accounts in Indian banks will have to pay 30.9 per cent tax plus service charges of around 2 per cent for the interests earned by their deposits, if they fail to produce Tax Residency Certificate (TRC) from Oman government to avail the benefit of reduced tax under Double Taxation Avoidance Agreement (DTAA).

The Reserve Bank of India (RBI), the central bank of India, has made the TRC mandatory from April 1, 2013.

Since the governments of India and Oman have a Double Taxation Avoidance Agreement, signed in 1997, until now, an NRO account holder had to pay only 10 per cent of tax for the interests earned by their deposits.

To avail this facility, an NRO account holder had to produce a self-attested residency certificate and a copy of the pan card. Now, however, the RBI insists on the TRC issued by the government of the country in which the NRI resides.

Meanwhile, even though Indian account holders in Oman have the necessary TRC documents, they do not know where they can get the documents authorised in Oman.

"So far, we haven't received any enquiries from our clients about the TRC. Moreover, we do not know where we can get the TRC documents authorised in Oman," said an account holder in Oman.

In the UAE, if an Indian pays 1,000 dirhams, he can get a TRC from the ministry.

Types of accounts
The Government of India has permitted NRIs to open rupee accounts in India in order to repatriate funds from their home countries. The two most common accounts are the Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts.

An NRE account is a bank account that is opened by depositing foreign currency at the time it is opened. This currency can be tendered in the form of traveller's checks or notes.

An NRO account is the normal bank account opened by an Indian who goes abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account. It offers the same facilities as an NRE account, except that any repatriation done through this account should be reported to RBI by filling up prescribed forms.

The difference in the tax treatment for interest earned on an NRE and an NRO account is that the interest earned on any type of NRO account as well as the credit balances in this kind of account are taxed under the account holder's tax bracket. On the other hand, interest earned on the NRE account is totally exempted from income tax, and the credit balances in the account don't attract any wealth tax. Any gift given to a close relative doesn't attract gift tax.

Courtesy: Times of Oman



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