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Interest on NRE account - is it taxable if status changes to resident for 1 year


(Querist)
A persson was transferred to UK in FY20 and had NRI status. Before that, he was an Indian resident for 30 years. In FY21, due to Covid and remote working, he worked from India for the UK employer (he was paid in UK and TDS was paid to UK Govt). In FY22, he went back to UK and his status will be NRI in FY22.

Now in FY21, as per tax rules, he is tax resident both in India and in UK. He had transferred funds from UK salaried account to NRE account in 2021. Is the interest income earned on NRE account in FY21, taxable in India (when he was resident in India) or is it to be shown as exempt income in India tax returns?

The question has arose because you have missed the first step of informing the bank of your status. Once the information is given about your stay in India, the bank converts the account to NRO, and such question would get dissolved.

Sec 10 - Incomes Not included in Total Income (4)(ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder : Provided that such individual is a person resident outside India as defined in clause (w) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account . . . If there is a breach of the FEMA Act and Rules with regards intimating the bank of the residential status, it should be taxable in India. This is my view. Others view could differ.



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