Taxability for Bank Accounts for Seafarers

Taxability for Bank Accounts for Seafarers

Taxability for Bank Accounts for Seafarers: Non-resident seafarers or non-resident Indians (NRIs) can open three types of bank accounts in India which will be discussed further in this article.

What is a Non-resident External Account (NRE)?

The NRE account is rupee-denominated (Indian), offering complete security. The foreign currency deposited into this account is converted to INR. One can transfer the funds, including the principal & interest amount, to a foreign account from an NRE account without any complications and restrictions. These accounts can be savings, current, recurring accounts, or fixed deposits. As per section 10(4)(ii), interest earned on this account is generally tax-free. Consequently, no TDS is deducted by the bank. However, it depends on the person’s resident status under FEMA.

An NRE account is primarily used for carrying out personal banking, business transactions, and making investments in India.

Note: The amount deposited into these accounts must be earned outside India.

What is a Non-resident Ordinary Account (NRO)?

The NRO account is a rupee-denominated saving or current account for managing the income earned in India by the NRIs. Interest received on this account is taxable, and the bank deducts TDS at a 31.2% rate. The account-holders can deposit and manage their assembled rupee funds without any hassle. For an NRO account, one can apply jointly with a resident Indian or an NRI. The NRO account allows one to receive funds in Indian or foreign currency.

It is advised to file an income tax return if the bank has deducted TDS on the interest earned during the year as one can get a refund of the whole amount deducted as TDS as a non-resident seafarer does not have any income in India and enjoy a tax-free limit of Rs 2,50,000 per annum. Also, if you don’t file the return, the ITD may send a notice for filing of return as one can have some income on which the TDS has been deducted but not claimed by the deductee.

What is a Foreign Currency Non-Resident Account (FCNR)?

The FCNR is a fixed deposit account opened for depositing income earned overseas and transferring the foreign income of the non-residents to India. The account is held in foreign currency. These accounts are exempt from tax or TDS in India under section 10(15)(iv) (fa), so no TDS is subtracted by the bank for the interest received on such accounts.

FAQ’s on Bank Accounts for Seafarers

Question 1.
Are non-resident seafarers allowed to have regular savings account in Indian banks?

As per FEMA rules, non-resident Indians are not allowed to have regular savings account in the Indian banks. The non-resident Indians are obliged to have bank accounts in the form of NRE, NRO or an FCNR.

Question 2.
Are seafarers allowed to transfer their deposits from any NRE or NRO account to a regular saving account once they quit sailing? If so, do they have to pay taxes on such transfers?

Yes, the seafarers can transfer their balance from an NRE or NRO bank account to any regular savings account. No tax is charged on such transfers.

Question 3.
For an NRE bank account, is the interest earned on such account tax-free if the individual seafarer becomes a resident of India, even for a single financial year?

As per the FEMA rules, the interest earned on an NRE account is tax-free only when the account holder is a non-resident Indian. If the person for a financial year becomes a resident of India, the interest earned becomes taxable.

Question 4.
Are joint holders allowed for the possession of NRE or NRO accounts?

Yes, NRE or NRO bank accounts are allowed to be opened by joint holders. Two NRIs can open an NRE account, and an NRI can open an NRO account along with another NRI or an Indian citizen.

Question 5.
What are the limits for TDS reduction on the interests earned on the NRO account?

On the interest earned on NRO accounts, the TDS is deducted at a 30% rate along with surcharge and applicable cess. The TDS rate then sums up to a 31.2% rate on interest earned up to Rs. 5 million. However, the total NRO interest can be subjected to TDS without any exemption.

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