Processing .....please wait.. 
The article has been forwarded.... 
NRI deposits set to fly out
By siliconindia staff writer
|
Friday, 09 July 2004, 19:30 IST
Budget Day was definitely not Pravasi Bharatiya Divas. Close on the heels of Reserve Bank of India (RBI), it was the finance ministers turn to come down on NRI deposits. He announced the withdrawal of tax exemption on income earned by way of interest on non-resident (external) deposits. Earlier, all interest earned on NRE deposits in India was tax-free.
This, however, will no longer be the case from September 1, 04. Interest income from these deposits will be clubbed with the other income of NRIs earned in India, and be subject to income tax.
Over the last few years, NRE deposits were hugely popular investment options with NRIs. Not only did the deposits earn substantial interests, but were also tax-free and fully repatriable. Moreover, since they were rupee denominated, they had the opportunity to gain on conversion to dollar in the case of dollar depreciation against the rupee.
Thanks to a swelling forex kitty, NRE deposits fell out of favour with the central bank, which gradually cut down rates. In July last year, it capped the rates on these term deposits to 250 basis points above LIBOR and over time this has been reduced further.