Shall appreciate your expert advice based on the following facts:

Am 59 years old & came back to India on 6^th November ’20 after my stint with an MNC overseas, for 14 years & 9 months. What is going to be my status for the previous financial year viz. 2020-21 as well as current financial year i.e. 2021-22? All my overseas salary up to 5^th of November ’20 were transferred to my NRE Rupee or US $ fixed deposits.

I do have some small income in the form of dividend on shares, interest on ordinary rupee FDs, house rent etc. Most probably, I will not be working abroad any more. What will be the tax treatment of my NRE deposits which are going to mature in future or have been renewed after my return to India in November’20? As per my standard instructions to the banks, the same are being auto-renewed on due dates.

I would like to know if there are any specific investment products other than NRE/RFC FDs, for the NRIs whose status has changed in the current fiscal year or is going to change in near future.

Most all my savings are in INR only, but classified under NRE deposits.

Ans: No, the interest income on your NRE FD earned until June 2023 is not taxable for the financial year (FY) 2023-24.

Here's why:

• NRE accounts are tax-exempt in India for NRIs. This means any interest earned on your NRE FD up to the point you became a resident (June 2023) is not subject to tax in India.
• Income tax is based on your residency status for the financial year. Since you were an NRI until June 2023 (falling within FY 2022-23), the interest income on your NRE FD during that period is not considered part of your income for FY 2023-24.

However, it's important to note that:

• Interest income earned on your resident FD accounts after June 2023 will be taxable for FY 2023-24 onwards.
• If you have any further questions about NRE accounts, resident FD accounts, or taxation in India, it's always best to consult with a qualified tax advisor.

Ans: Tax Implications on ETFs and Swing Trading: As an NRI, any income earned from securities transactions in India, including ETFs and swing trading, is subject to taxation. Short-term capital gains (STCG) from equity investments held for less than one year are taxed at 15% plus applicable surcharge and cess. However, if you become a resident Indian again, you'll be taxed as per the resident Indian tax laws, which include LTCG tax of 10% on equity investments held for over one year. It's essential to consult with a tax advisor to understand the specific implications of swing trading on your tax liability as an NRI.

NRE FDs vs. Small Finance Banks FDs: NRE fixed deposits offer the advantage of tax-free interest income and full repatriation of funds, making them an attractive option for NRIs. However, you rightly pointed out that if your residential status changes to resident Indian within 1-2 years, the interest rate and taxation will be recalculated based on resident rates. In such cases, investing in FDs of small finance banks with higher interest rates can be a viable alternative. While the interest earned above ?40,000 is subject to a 10% TDS, it's essential to consider factors like liquidity, safety, and the bank's credit rating before investing. Evaluate the interest rate differential and potential tax implications to make an informed decision based on your financial goals and risk tolerance.

Considering your investment horizon and financial objectives, it's advisable to consult with a financial advisor or tax consultant who can provide personalized guidance based on your specific situation and help optimize your investment strategy.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

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