Saturday, March 21, 2009

Is NRE remittance taxable?

Is it possible to avoid taxes by remitting to NRE account instead of salary account?
Remitting into any type of account makes no difference in tax exemption.
Is NRE remittance taxable?
Yes if you are resident and ordinarily resident in India. If you are a NRI then you claim tax exemptions.

So now one wonders who is a resident and who is an ordinary resident and who is a non-resident.

Under section 6 of the Income Tax Act, an individual is resident in India if he is in India for 182 days(182 days if he leaves India to takes up employment outside India if he is a citizen of India or being outside India comes to India on visit if he is a citizen of India or a person of Indian origin) or more in the previous year, or he is in India for 60 days or more in the previous year and for 365 days or more in the four years preceding the previous year. He/She is a resident but not ordinarily resident if he satisfies any of the following conditions: He is non-resident in nine out of the 10 years preceding the previous year; he is in India for 729 days or less in the seven years preceding the previous year; if an individual is resident but is not resident but not ordinarily resident then he/she would be resident and ordinarily resident.

For a resident and ordinarily resident in India (decided based upon the above) the income earned by way of salary outside India will also be taxable in India. If there is a Double Taxation Avoidance Agreement between India and a foreign country in which one earns salary, claim benefit can be claimed under the agreement. If there is no such agreement, benefit can be obtained by way of credit of the tax paid in the foreign country on such salary income in India. The credit will be the lower of the tax paid on such doubly taxed income in that other country or the tax payable on the same in India.

From the taxation point of view, it will not make any difference whether one remits his/her earnings into a NRE account or into a regular savings bank account.

1 comment:

Unknown said...

yes...........
you r right.... it doesn't make any difference...