NRI Q&A: For returning NRIs of India, is there any way to save the tax on the NRE Savings interest?

Here is a recent online query:

For returning NRIs of India, is there any way to save the tax on the NRE Savings interest?

This is typically interesting. If you keep your money overseas, you can avoid the Indian taxes that is relatively high and hardly 1% of Indians pay taxes. In other words, practically the Government does not want the funds to be brought back to India. Looks weird!!!

Response below:

Evaluating just tax on your interest/savings is very myopic and can lead to poor decisions. Why do I say that?

  • Repatriate or not is a question that requires a lot of thought
    • Interest / dividends income in many western countries is taxable. For instance, if you have an account in the US, UK or Canada, your financial institution will automatically report it to tax authorities, and may also deduct tax (TDS) before you get paid.
    • Interest rates in the west – in $s??s or ? -?are much less than offered for??.
    • Of course other factors like exchange rate fluctuations will have to be taken into account
  • It is not practical – or wise – to evade taxes. Look for holistic strategies to avoid and minimize taxes. Check out?Difference Between Tax Avoidance and Tax Evasion (with Comparison Chart) – Key Differences
  • Tax planning needs to take a 360 view of your earnings and finances and not just interest
    • Unless you are a professional financier or full-time investor (e.g Warren Buffet), Interest and dividends from investments are going to be one component of your earnings.
  • Tax planning will also have to consider one?s global income considering tax treaties India has with other governments . E.g -?US ? India tax treaty – IRS.gov

Another key factor to keep in mind: A ?returning NRI? will become a (tax) ?resident? of India after returning and spending a set period of time in India.

Bottomline: Trawling in Quora and online forums may give you partial answers. If you have sizable income and investments, hire a competent tax adviser.

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