About Tax exemption under Form 15G for NRIs
Harsh Patel is a banker who is residing in the US for the last ten years along with his wife and two kids. His investment portfolio in India comprises of a Non Resident Ordinary (NRO) Account and Non Resident External Account. Harsh earns regular interest on both the accounts.
Although, the income that he earns in form of interest from NRE account is tax free, his bank deducts tax at a rate of 30 per cent from his NRO account.
Harsh normally earns 1 lakh interest from both his accounts similar to many of his Non Resident Indian friends who also earn total interest in the tune of 1 lakh.
This is much lower than the basic exemption limit for paying income tax in India. In their case, banks deduct tax at source (TDS) for which they have to file a refund claim.
Is Form 15G needed in such a case so that the bank doesn’t deduct interest?
Form 15G is not required in such a case and hence, not prescribed to be used here.
What is Form 15G?
Form 15G (or Form 15H for senior citizens) is a form prescribed under section 197A of the Income Tax Act.
Why is it used?
The form is usually submitted with banks by the people who earn an annual income below the basic exemption limit of 2 lakh so that the bank doesn’t deduct tax at source on the interest income. However, the point that must be noted is that the form is only valid for resident Indians and not non resident Indians.
10 per cent of the interest is deducted when it surpasses Rs 10,000 yearly in case of resident Indians. And, for no resident Indians TDS is deducted on every rupee earned from interest at the rate of 30 per cent.
What should NRIs do?
In such a case, NRIs can claim refund can use a special way which is also defined under Indian tax laws rather than filing Form 15G. You can file an application under section 195(3) of the Income Tax Act to the jurisdictional tax officer in order to acquire a certificate of non-deduction or lower deduction of taxes.
Once you receive a waiver from the concerned tax officer, you can claim an exemption in TDS after submitting that to the bank where you hold your account.
Note: You must hold a Permanent Account Number (PAN) before you apply for an exemption.