An Introduction To Income Tax On Foreign Currency Deposits

Foreign currency deposits provide a lot of financial benefits. Here, you can invest certain set of foreign currencies which have a higher market value, especially on conversion to the local currency. You can invest any of the acceptable foreign currencies in this deposit and earn some good returns for it. However, certain set of foreign deposits are liable for income tax. Through our guide, we will give you an introduction of the different deposits that can hold this foreign currency and how are they viable for income tax.

What Are Foreign Currency Deposits?

For Indian individuals who are working abroad and wish to invest, the foreign currency deposits account is the ideal choice. Whether you are looking for an investment opportunity, to pay for your child's education overseas or even to start up an international business venture, this is the ideal choice of account for you. Each of these accounts has different features and benefits which are tailor made to suit your needs. Some of them include saving accounts, current accounts and even termed fixed deposit accounts. Some of these accounts hold rupee denominations while others hold only foreign currency. There are different ways in which the funds can be invested and handled in these accounts. Certain factors like repatriation of the amounts invested and the taxable brackets will also be required to be considered for individual non – residents especially when they earn income from these accounts.


How Income Tax Is Applied To Foreign Currency Deposits?

Each of the different foreign currency deposits has different features which also include the income tax application on it. Some of the accounts in this foreign currency deposits will be liable for income tax, especially on the income that is deposited in the form of interest. Certain accounts like the NRE accounts are tax free. There is no taxation on the interest that is earned here, meaning, there will be no TDS on the income that is earned through any of these accounts. On the other hand, the NRO accounts are taxable. The income that is earned here is taxable, especially when you can repatriate at most 1 million USD per financial year. The FCNR account is a termed deposit account that can be opened for a fixed time period of maximum 5 years. Like the NRE accounts the interest that is earned on the investment in this account is not taxable. One benefit of this account is that, it can hold a choice of any of the six different foreign currencies.

No matter which account you will select, it is important to include them in your tax working. While the amount you earn abroad may not be much when taxed in India, but there is a high likelihood that you can get a refund of the amount that you have faced as a deduction from the government.

Neha Sharma is a finance student who loves to write in her free time. She is well experienced with the different foreign currency deposits. Through her article, she has provided an introductory guide that will provide you with information that will help you understand this tax on these foreign currency deposits.