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Change in tax status on NRE FDs on return to India

Interest earned on NRE account will be taxable in the year you become a resident in India

I have returned to India after 24 years and have a substantial amount in NRE FDs. There are conflicting views on how taxation will apply after I become resident. Kindly clarify.
- C S Ramakrishnan

While you are non resident, NRE fixed deposits do not attract taxes either on the principal or interest earned from the deposits. Consequently, NRE fixed deposits are completely tax free.

But as per the Indian tax laws, interest income earned by an individual on NRE accounts is only tax exempt in India if the individual qualifies as a "person resident outside India", as per the Foreign Exchange Management Act, 1999.

Interest earned on NRE account will be taxable in the year you become a resident in India. On becoming resident the onus is on you to notify the bank of the change in the status from non-resident to resident so that the bank account can be re-designated as 'ordinary' from its NRE status.

The interest income from the FD will be taxable as 'Income from other sources' once your tax status changes to a Resident.

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