Receipt of money in nre account

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Madhu H S (Querist)

28 July 2014 Dear Sir

For AY 2014-15: Pls advise regarding taxability of income received in NRE a/c (in $'s) for evaluation of answer papers of a foreign school in India, by an RNOR (PIO, but a citizen of Canada).

Can he take the benefit of Proviso to Sec. 5(1) as he is an RNOR. & pay no tax on the above stated income (valuation of papers)?

Thanks in Advance.

Madhu H S

Madhu H S (Querist)

29 July 2014 Dear Sir

For AY 2014-15: Pls advise regarding taxability of income received in NRE a/c (in $'s) for evaluation of answer papers of a foreign school in India, by an RNOR (PIO, but a citizen of Canada).

Is Proviso to Sec. 5(1) is applicable in the present case as he is an RNOR.

Thanks in Advance.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

20 July 2025 Got your question about taxability of income credited to an NRE account for an RNOR who is a PIO and Canadian citizen, specifically income earned in India from evaluating answer papers for a foreign school.

Here’s a detailed answer:

Key points:
Income source: The income is earned in India (for evaluation of answer papers of a foreign school in India). So the income accrues or arises in India.
Recipient: RNOR (Resident but Not Ordinarily Resident) and a PIO (Person of Indian Origin) with Canadian citizenship.
Account: NRE (Non-Resident External) account — the currency or account type does not determine taxability of income. Taxability depends on residential status and source of income.
Taxability of Income for RNOR under Section 5(1):
Section 5(1) of the Income Tax Act says:
Residents are taxed on their global income.
Non-residents and RNORs are taxed only on income received or deemed to be received in India or income accruing/arising or deemed to accrue/arise in India.
Proviso to Section 5(1) excludes income earned outside India which is not received in India from taxation for RNORs.
But here, income is earned in India (evaluation services for a school in India) and received in India (NRE account).
Is the income taxable?
Since income is earned in India, it is taxable in India regardless of residential status (resident, RNOR, or non-resident).
Receipt in NRE account does not exempt income from tax; only repatriation benefits are there on NRE accounts.
RNOR status does not exempt income earned in India from tax.
Additional notes:
NRE Account: Interest earned on NRE account balance is tax-free in India, but the income deposited (fee for evaluation) is taxable as business income or professional income.
Double Tax Avoidance Agreement (DTAA): If Canada and India have a DTAA, it may provide relief from double taxation.

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