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Help regarding income tax

sravan (Audit & Compliance officer ) (66 Points)

12 July 2012

Hi I need some assistance regarding one of my NGO client. They are due to get some funds from the US from an NRI. The donator does not wnat to part with the principal but he shall park some funds in an Indian bank and the interest out of the deposit shall be fully transeferred to the NGO which is charitable organisation as per the income tax act. Since the investment in local bank is by an NRI the interest is subject to TDS @ 30%. Except for the principal the NRI has done away with interest totally to NGO.Say the interest amt is transferred to the trust as a irrevocable transfer then as per clubbing can the income be clubbed with Trust i.e NGO and NRI claim no deduction of TDS? Please provide assistance in this regard or is there any way that NRI can save tax, so that the trust can receive better financial support.

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Nitesh ujjwal (ARTICLE ASSISTANT) (41 Points)
Replied 12 July 2012

Dear Sarvan,

This is the case of Diversion of income. In your case interest is transfered to NGO not the source i.e. FD. So income on FD shall be taxed in the hand of NRI and TDS shall also be claimed by NRI.

it doesnt matter that transfered income to NGO is recoverable or irrecoverable, irrecoverability matters when its about the source of Income i.e. FD.

In this case NRI can claim TDS as well as deduction u/sec. 80G if available for NGO.

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veerkar (none) (43 Points)
Replied 12 July 2012

Originally posted by : Nitesh ujjwal
	Dear Sarvan, This is the case of Diversion of income. In your case interest is transfered to NGO not the source i.e. FD. So income on FD shall be taxed in the hand of NRI and TDS shall also be claimed by NRI. it doesnt matter that transfered income to NGO is recoverable or irrecoverable, irrecoverability matters when its about the source of Income i.e. FD. In this case NRI can claim TDS as well as deduction u/sec. 80G if available for NGO.

Other option is that he can have NRE account instead of NRO account in the bank. Today Both NRE and NRO accounts enjoy same high rate of interest ( 9.5%). Interest earned in NRE is fully exempted from tax and there is no TDS also. He can donate interest amount to NGO in India. Added benefit is that he can repartriate the capital sum back to his country very easily without any CA cerification.Ofcourse tomorrow if NRE interest rates come down then it makes more sense to have NRO account. Bank will deduct 30% TDS on interest, however small the amount may be, and he will have to get it refunded by filing returns. In this case he can claim 80G also but that makes sense only if his income in India is more than taxable limit.

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