[www.keralites.net] Transfer of fund from NRO account to NRE account

Dear Professional Colleagues,

Opportunity Knocks our Doors only once.

This article aims to throw some light on one of the Professional Opportunities for CAs in practice – FOREX related certification.

1.        RBI's recent Circular:

RBI, vide its recent Circular (A.P. (DIR Series)Circular No. 117), has permitted that any amount held in NRO A/c of an Account holder can be transferred to NRE A/c provided a Chartered Accountant's Certificate is enclosed therewith. Such Certificate should specify the nature of Income and the appropriate rate of tax thereon.

2.       NRO and NRE Accounts – A Basic Sketch:

The following are the basic differences between an NRO & NRE Account

Description	Non Resident Ordinary A/c	Non Resident External A/c
Currency that can be deposited in the Account	Only Indian Rupees are allowed to be deposited in the Account	Foreign Currencies can also be deposited in the Account
Nature of Funds that can be parked in the Account	Both Indian Funds and Foreign Funds can be deposited in the Account	Only Foreign Funds can be deposited in the Account
Repatriation	Money deposited in NRE A/c is not freely repatriable	Money deposited in NRE A/c is repatriable.
Status of Joint Holder	Joint Holders in an NRO A/c can either be Residents or Non Residents	In an NRE A/c only a NRI can be a joint holder
Taxability of Interest	Interest from NRO A/c is taxable (They are subject to TDS)	Interest from NRE A/c is not taxable

 

3.       Benefits of Converting from NRO to NRE Account:

 

(a)    No Tax liability on interest earned and hence No TDS

(b)   Interest rates in NRE A/c is the same as that of NRO A/c. Hence, considering post tax impact, effective interest rate in NRE A/c will be higher than effective interest rate in NRO A/c.

(c)    Amount being held in NRE A/c, it is possible to repatriate outside India in case of need.

On account of the above benefits, many NRO Account Holders, are transferring their funds to NRE A/c. There is a necessity for a Chartered Accountant's certificate, to effect this transfer.

4.       Contents of this Certification:

Whenever there is a transfer made to a NRE A/c, a CA must certify the amount of tax that needs to be deducted on such transfer. For example, when there is a professional fee paid abroad, by one Company to another professional (abroad), the CA must certify the amount of TDS to be made on such payment.

Such certification is made in the format as prescribed in the Income Tax Act, i.e., in Form 15CB. Since this is a transfer to NRE A/c (to a Non Resident Account), CAs have to certify the amount of tax that needs to be deducted on this transfer. The following interpretations are possible:

(a)    When the Non Resident Account Holder has "Indian Income" parked in NRO A/c, which he wants to transfer to NRE A/c, proper tax has to be paid on such income before such transfer takes place. Then the remaining amount can be transferred. The amount of Tax that he has to pay shall be mentioned in Form 15CB.

(b)   When the Non Resident Account Holder has foreign income parked in NRO A/c, the same is not subject to tax in India (i.e. Foreign Income earned by a NR). However, where it earns interest in NRO A/c and when the principal along with interest is now transferred to NRE A/c, the Interest Income is taxable in India. This has to be calculated and included in Form 15CB.

The above examples are not exhaustive. It is hence clear that it is necessary to find the source of funds which is subject to transfer and its relative taxability.

5.       Suggested Steps for Certification / Audit Documentation:

 

(a)    Where an account holder wants to transfer his funds from NRO to NRE A/c, its better to have a KYC (Know Your Client) norm being satisfied (his PAN Copy, Passport Copy, Address proof, place where he is working aborad, any other relevant details, etc., could be obtained).

(b)   A Banker's Certificate can be obtained in relation to the amount that he is holding with a particular bank (in NRO A/c), including accrued interest thereon. As the amount is proposed to be transferred at a later date, its better to have this certificate with an accrued interest till that proposed date, from the Banker.

(c)    Form 15CB (in the suggested format enclosed) can be prepared and certified.

(d)   For the above purpose, representations and confirmations from the Account Holder (suggested format enclosed herewith) can be taken.

(e)   Form 15CA has to be filed Online. The same can be done through, the web portal of "tin-nsdl" (Downloads > Form 15CA). Using this option, it is possible to file the Form with IT Department. A signed copy of Form 15CA has to be sent to the Bank and another copy can be retained by the Auditor for future reference.

The following resource materials are relevant for this certification:

1.       RBI Circular - AP DIR Series

2.       Income Tax Act, 1961 – Chargeability of tax.

3.       Double Taxation Avoidance Agreement, if need be.

4.       Standards on Related Services & Certification.

5.       Any other information as may be required based on facts and circumstances of each case.

Trust our Members are benefited by this opportunity.

 

 

ANNEXURE 1

 

 

CERTIFICATE NO:

FORM No. 15CB

(See Rule 37BB)

We have examined the documents submitted by MR…… [PAN:…….] residing at………… for transfer of funds from Non Resident(Ordinary) Account to Non Resident (External) Account and bank extracts requiring the above transfer as well as the relevant information and  books of accounts required for ascertaining the nature of remittance and for determining the rate of deduction of tax at source as per provisions of sub-section (6) of Section 195.  We hereby certify the following:

A	Name and address of the beneficiary of the remittance
B	1.	Country to which remittance is made	Country: Currency:
	2.	Amount of remittance (Proposed)
	3.	Name of the Bank with branch
	4.	BSR Code of the bank branch (7 digits)
	5.	Proposed date of remittance
	6.	Amount of TDS	In Foreign Currency :				In Indian Rs:
	7.	Rate of TDS	As per Income Tax Act:				As per DTAA :
	8.	Actual amount of remittance after TDS	In Foreign Currency :				In Indian Rs:
	9.	Date of deduction of tax at source
	10.	Nature of remittance as per agreement or document	TRANSFER OF FUNDS FROM SELF NRO TO SELF NRE ACCOUNT
	11.	In case the remittance is net of taxes, whether tax payable has been grossed up? If so, computation thereof may be indicated.	YES / NO
	12.	If the remittances is for royalties, fees for technical services, interest, dividend etc., please indicate:	YES / NO
		(a)The clause of the relevant DTAA under which the remittance is covered along with reasons.	Not Applicable
		(b) Rate of TDS required to be deducted in terms of such clause of the applicable DTAA	Not Applicable
		(c) In case TDS is made at a lower rate than the rate prescribed under DTAA, reasons thereof	Not Applicable

 

	13.	In case remittance is for supply of articles or thing (e.g., plant, machinery, equipment, etc.) or computer software, please indicate:	YES / NO
		(i) Whether there is any permanent establishment in India through which the beneficiary of the remittance is directly or indirectly carrying on such activity of supply of articles or things?	Not Applicable
		(ii) Whether such remittance is attributable to or connected with such permanent establishment?	Not Applicable
		(iii) If so, the amount of income comprised in such remittance which is liable to tax.	Not Applicable
		(iv)    If not, the reasons in brief therefore.	Not Applicable
	14.	In case remittance is on account of business income please indicate:	YES / NO
		(i) Whether such income is liable to tax in India?	Not Applicable
		(ii) If so, the basis for arriving at the rate of deduction of tax.	Not Applicable
		(iii) If not, the reasons thereof	Not Applicable
	15.	In case any order u/s195(2)/195(3)/197 of Income Tax Act has been obtained from the Assessing Officer, details thereof:	Not Applicable
		(i) Name and designation of the Assessing    Officer who issued the Order/Certificate	Not Applicable
		(ii) Date of the Order/Certificate	Not Applicable
		(iii) Specify whether u/s 195(2) or 195(3) or   197 of  Income Tax Act	Not Applicable
	16.	In case of any other remittance, if tax is not deducted at source for any other reason, details thereof.	Refer Evaluation Statement in Annexure (CAs can mention the relevant provisions of law, inference and basis of conclusion, if any, in the Evaluation Statement as a separate enclosure)

Note: The Evaluation Statement and Annexures provided herewith also forms part of this Certificate.

For ……………………..

Chartered Accountants

Firm No. – …………..

 

 

 

………………..

Date:……………

Place: ……………

ANNEXURE 2

Date:

…………..

 

To

 

……………………………

Chartered Accountants

 

 

I hereby declare the following:

1.       I am a Non Resident for the Financial Year …………….

2.       I hold the following deposits with ……….., Bank, ……….. Branch.

A/c No	Amount (in `)
Total

 

3.       The above deposits have been made from my earnings out of India. Hence the same is not taxable in India.

4.       This is to inform you that my banker ……………..has agreed to deduct TDS on the accrued interest for the period 01/04/2012 to ……….. (proposed date of transfer) on the above deposits for an estimated interest amount of ` ………….

5.       I further declare that: (tick whichever is applicable)

?       I do not have anyother source of income that is earned from India.                    

?       My income from other sources in India are below the tax liability prescribed.

?       I have properly paid Income Tax for the other sources of Income earned in India.

 

The above declaration is made by me is for the specific purpose of issuing Form 15CB, for transfer of my above deposits from NRO to NRE A/c

 

Thanking You

 

Name:                         

PAN:

Signature:

 

With Regards,

 

 G Sekar, B. Com, FCA, Chennai

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