Indian Banks or Financial Institutions are supposed to deduct TDS @ 30.9% as per section 195 of the Income tax Act, when they pay the Interest income to NRIs on the NRO Fixed deposits. You end up paying tax which is high enough to wipe out your 1/3rd Interest earnings.
There are different ways you can save the excess tax deducted on the Interest Income:
- Obtaining Tax residency Certificate (TRC) – Using DTAA, you can ask your Bank to deduct TDS at a lower rate (in case of person resident in UAE, TDS rate shall be 12.5%) by furnishing a TRC.
- File income tax returns – If the TDS is already deducted, you can claim back the excess tax deduction by filing the tax returns in India
- Repatriation through Form 15CA/CB – You can take assistance of a Chartered Accountant and transfer your funds from NRO a/c to NRE a/c. Interest on NRE a/c which is entirely tax
FAQs on DTAA and TRC in UAE:
- What is DTAA?
DTAA stands for Double Taxation Avoidance Agreement. It is an agreement between two countries on how to avoid double taxation on same income in both the countries. Also, it has beneficial tax rates for some income. India at present shares complete DTAA’s with 85+ other countries.
- What is a Tax Residency Certificate (TRC)?
Tax residency certificate (TRC) is a document issued by an authorized Governmental body of a country certifying that the person is a tax resident of the issuing country. TRC has a validity period and should cover the entire financial year. There is no prescribed format, every country has its own format. In the UAE, TRC is issued by the Ministry of Finance (MOF).
- What are the documents required for obtaining TRC for an Individual in UAE?
- Passport copy and valid resident visa
- Stamped UAE Bank statement for the last 6 months;
- Salary Certificate from Employer or Trade License in case of Business Owner/Partner.
- Certified tenancy Contract with Ejari (RERA) or Title Deed.
- Immigration Entry Exit Report of Residency from the General Directorate of Residency and Foreigners Affairs.
- What are the steps to apply online for the UAE TRC?
You need to visit the Ministry of Finance’s online portal and create an account. The application needs to be filled precisely with the correct information and you need to upload the supporting documents. The application will be reviewed and approved by MOF. On approval, the fees for the TRC can be paid online. TRC will then be sent via email which can be downloaded and saved for our records.
- What is the cost of obtaining the TRC in UAE?
The Government application charges are AED 2106 for Individuals and AED 120 for the Stay report at Immigration department.
- Can you obtain a Backdated or a Predated TRC?
You can obtain a backdated TRC for last 3 years only. You need to submit the supporting documents pertaining to the concerned year while making an application. Predated TRC is also not possible to obtain from the MOF.
- Do I need to submit the UAE TRC along with my Indian Income tax returns?
Indian Income tax returns are paper less. You don’t have to submit the TRC along with tax returns. However, if you have availed the DTAA benefit, then you to mention in the Tax returns that you hold a valid TRC. In case of enquiry from the IT authorities, you need to submit the TRC to them.
- Is UAE TRC be beneficial for any other income earned in India?
Depending on case to case basis, if you wish to claim benefit under India-UAE DTAA, TRC can be beneficial to you if you have following income:
- Income from Mutual Funds in India
- Income from proceeds of Insurance policies (not exempt u/s 10(10D) of the IT Act),
- Income from taxable Pension funds in India
- Income from NRO a/c Interest Income