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Tax deduction at source on NRI deposits

It is true that the ruling of AAR in the reader’s case is only on the rate of tax for deduction at source from interest. Though the issue relating to Form 15G was specifically raised by the reader, it was not answered as in the reader’s case, it made no difference, possibly because his income was apparently above the taxable limit. Form 15G was amended without requiring a declaration in the new application that the assessee is a resident as was necessary before the earlier form amended consequent on insertion of sub-section (1A) to Sec. 197A without any restriction as between resident and non-resident for purposes of interest “of the nature referred......194A”. Most banks have taken a view, that it is not safe for them to act on declaration in Form 15G, but the Board maintains a stoic silence, though it is well aware of the circumstances in which the amendment was made in response to demand of non-residents holding NRI deposits.

The reader is apprehensive that non-resident deposits out of local funds should be treated differently from deposits made out of overseas remittances. In the reader’s case, the deposits were probably all out of past foreign remittances, but the issue answered by the AAR is the rate of tax applicable to NR(O) deposits so that the source of funds would make no difference as long as the holder is a non-resident Indian. Needless to point out that amounts held in Non-Resident (External) Account or Deposits are tax exempt.

In the second question, the reader expresses the doubt, whether Form 15G will be applicable because declaration in Form 15G to be filed by the declarant requires information, whether the declarant is resident or non-resident. The Form, no doubt, requires a statement, whether the applicant is a resident of a non-resident, but it does not require any declaration that the declarant is a resident as was the language in the form prevalent prior to insertion of Sec. 197A(1A).

As for the third point that a non-resident may have to go to the AAR as to the eligibility for Form 15G on the ground that it is binding only to the applicant’s case. The Central Board of Direct Taxes can react to the ruling officially by accepting it. At any rate, a ruling given by the AAR though technically binding only in that case, the interpretation of law placed by this high-powered authority presided over by a retired Supreme Court judge and two other senior officers of the Government as members after hearing a senior representative of the Income-tax Department on instruction from it cannot be ignored. In fact, the rulings of the AAR are subject matter of the decisions of the Courts and commentaries and are noticed internationally in the development of law relating to international taxation. It would be safe to follow such ruling in the absence of any contrary authority.

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