What are the tax implications when children working abroad transfer money to the savings account of their parents in India?
– Name withheld on request
Under the Indian Income Tax (IT) Act, tax is levied on any amount, received in excess of specified movable or immovable property By any person without consideration (that is, without any benefit) or for insufficient consideration, excluding gifts received from a “relative” or on marriage or by way of inheritance or other specified exclusion. The word ‘relative’ also includes any lineage. Ascendant or descendant. Thus, money remitted from outside India to the savings accounts of the parents will not have any tax effect in India.
Can an NRI get a tax refund if a bank deducts more than the final tax liability on Non-Resident Ordinary (NRO) Account Fixed Deposits.
– Name withheld on request
Interest income from a resident bank account and NRO bank account can be taxed at the same rates as ordinary income. Interest income from any savings bank account from taxable interest income. eligible for deduction up to 10,000 ( 50,000 for senior citizens aged 60 years or more, interest income on savings accounts and fixed deposits).
However, under the Double Taxation Avoidance Agreement (DTAA) between India and the country concerned, such interest may be taxed at a special/remunerative rate of tax. To apply for the beneficial rate under the DTAA, you will need to qualify as a “resident” of the other country under the DTAA and obtain a tax residency certificate from the other country’s tax authorities and other specified documents.
If the individual qualifies as a “non-resident” of India, the bank will deduct TDS at 30% (plus applicable surcharges and cess) on the interest income from the NRO bank account. If the TDS deducted by the bank is more than the final tax liability, such additional TDS can be claimed as refund in the income tax return.
Sonu Iyer is EY India’s Tax Partner and People Advisory Services Leader.
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