HURRAY  !!!    HURRAY  !!!

Dear Friends

Good wishes.

It is indeed a joyous moment, which calls for celebrations, but the credit goes to Shri P. Chidambaram. Many, many thanks to Hon'ble Minister whose action will not only regain the confidence of NRI but will go a long way in strengthening their economic ties with India.

Well, on behalf of nribanks.com and my personal behalf, we sincerely thank Shri P. Chidambaram for kindly considering the submissions made out in our Memorandum as also numerous representations of NRIs across the Globe. As made out in our Memorandum, the tax was not the issue. The issue was the possible hardship of preparing accounts, filing tax returns, assessment procedures and so on and so forth.

To summarize, it can be stated that -

.01 interest earned on Non-Resident External [NRE] Account; and

.02 interest earned on Foreign Currency Non-Resident [FCNR] Accounts; will continue to be exempt from income-tax in India.

2. It may be noted that the income-tax was leviable w.e.f. 01-04-2005 and as such, till date, no income-tax was levied.

3. NOW, as the exemption is restored, in effect, interest earned on NRE & FCNR Accountsnever becomes taxable and continues to be exempt from income-tax.

5. Similarly, interest earned on Resident Foreign Currency [RFC] Account in case of Returning-NRIs, which was exempt, was also proposed to be taxed w.e.f. 01-04-2005.

6. NOW, the said interest of RFC Account will also continue to be exempt from income-tax till the Returnee-NRI's Residential Status under the Income Tax Act remains as "Non-Resident [NR]" or "Resident but Not Ordinarily Resident [RbutNOR]".

6. It may be noted that interest earned on Non-Resident Non-Repatriable [NRNR] Account and State Bank of India's India Millennium Deposits [IMDs] was not proposed to be taxed, and hence, was tax-free and continues to be tax-free.

7. Of course, interest earned on Non-Resident Ordinary [NRO] Account has been liable to tax and continues to be. 

NO DOUBT , in spite of the continuation of tax exemption, the returns/yields of Mutual Funds outperformed the interest offers on NRE/FCNR Deposits and Mutual Fund Schemes continue to offer more profitable alternatives to Savings and Deposit Accounts of NRIs.

II. As more interest earning and  tax-free alternatives for  INR as also Foreign currency Deposits, Mutual Fund schemes score better. These are –

II.1 INR ALTERNATIVES :

1. Fixed Maturity Plan [FMP] with assured tax-free return of app.5.75% for 16 Months tenure or the Arbitrage Fund with possible tax-free yield of 6.50% p.a. are quite attractive.as compared to
.01 NRE Savings interest 3.50% p.a.;
.02 NRE 1 to 3-year Deposit interest ranges 4.00% to 4.50% p.a.

2.Interest offered on NRE / NRO Savings interest at 3.50% stands beaten by Floating Rate Funds, app. tax-free yield of 4.75% p.a.too.

II.2 FCNR ALTERNATIVES : 

1. India Millennium Deposits [IMDs] 

.01 India Millennium Deposits [IMDs] being State Bank of India’s Bonds offered in Dec, 2000 and due for maturity on 30-12-2005.

.02 Yield to maturity app. 4.50% up.a.

.03 As the transaction is facilitated by Sellers’ Bankers who provide a guarantee to deliver the Bonds to the Buyer,upon receipt of the funds, the transaction of sale and purchase can be taken up at almost no risk.

.04 However, this Scheme is not open for Residents of USA and Canada.

2.Foreign Currency Deposits in Far East and Middle East –

 Foreign Currency Deposits being offered by India Centric Banks at attractive rates of interest.

.02 The interest rates offered are tax-free in the Country of Deposit.

.03 The Deposit and interest are fully reparable., and

.04 The interest rates are comparatively better than interest rates offered in India, 

.05 As interest rates world over are on the rise , it is appropriate to place deposits for 1 or at the most 2 years.
1 Year foreign currency deposit rates of India-centric banks in Far East and Middle East are :

-  US$  3.52% p.a.  ;    GBP  5.11% p.a.   and    Euro  2.36%  p.a.

3.The yield of 3-year FCNR Deposits at US$ 3.60% p.a., GBP 4.66% p.a. and Euro 2.55%  do not compare well to FMP tax-free yield of 5.75% over 16 Months, which together with Foreign Exchange Forward Cover provides yield in the range of US$ 3.80%, GBP 5.75% and Euro 2.80%.

Best wishes.

RAJESH H DHRUVA
Chief Executive

nribanks.com

Tel. No. : 0091 281 2464099 / 2463367
Cell : 0091 98240 49944