NRE FD - continuity and tax senario on change of status

Dear  Sir
 I have booked NRE FD for 8 yrs and my status will change to Resident after two years . Will this NRE FD will continue for the remains period of 6 years on contracted rate of interest . Can bank break this NRE FD in between on change of status to resident. One bank says it will continue till its maturity but interest earned after change of status will be taxable while other bank says on change of status they will prematurely close the NRE FD and option to rebook as resident FD on prevailing  rate of interest at that time. Pl reply
Dr Dinesh 
saksenadinesh@hotmail.com
Asked 2 years ago in Income Tax from New Delhi, Delhi
Banks at present are not allowed to offer more interest to NRE accounts than those prevailing for residents. However, since interest rates may go down after two years, your question of whether they will break FD or continue with the same FD are important. 

There is a clarity with respect to FCNR B Account that the banks can continue to give the same rate of interest.even after you become resident, till the maturity of the fixed deposit. However, with respect to NRE Account such clarification is not available. 

Therefore you are requested to get the confirmation in writing from bank that they will not break the FD after you become resident and keep your FD only with such bank.

So far as taxation is concerned, since only a person resident outside India as per FEMA can get the exemption on interest on NRE account, you may not qualify for tax exemption for the interest post becoming resident (whether you break the FD or not) even if you do not change your status in bank but you are resident as per FEMA. You may check as to how to remain non resident for longer time as per FEMA to extend the exemption.

I appreciate your question and since this is a very common problem, hope that above mentioned clarification will help.
Sagar Jayawant
CA, Thane
27 Answers
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  Talk to Sagar Jayawant
There are no conclusive answers but in my opinion it will be interest income on NRE deposit as long as you have come to India for certain number days and will return abroad after expiry of such defined period.  Therefore it is only about certainty of return abroad after defined period whether you are a non resident under FEMA.
Vijay N. Kale
CA, Hyderabad
248 Answers
4.9 on 5.0
  Talk to Vijay N. Kale
After coming back, the year in which your gross total income is more than maximum amount of income not liable to income tax i e presently Rs 2,50,000 then in that year you have to file return of Income and comply. There is no separate declaration of bank account as such.
After deregulation of interest rates every bank is free to offer deposit scheme as per their funds position.
Vijay N. Kale
CA, Hyderabad
248 Answers
4.9 on 5.0
  Talk to Vijay N. Kale
sir i think the same is being answered and you have put the question again to Mr. Jayawant. 
Shyam Sunder Modani
CA, Hyderabad
1343 Answers
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