Many Indians resident in the UK, and some tax advisers, mistakenly believe that interest income arising in India is not taxable in the UK. In the February edition of Taxation, Pure Tax’s Managing Partner Amit Puri sets the record straight.

Misconceptions

Non-Resident Indians (NRIs) can benefit from savings and investment products in India geared specifically to their non-residence status. For simplicity, here we focus on non-resident external (NRE) accounts, which have always tended to offer higher rates of interest than those on offer to local residents there. This made the simple fixed-term deposits attractive.

Investors typically do not have private banking nor wealth management relationships with the banks in India, since historically NRIs have been able to secure these accounts by simply walking into local bank branches or through correspondence.

As well as higher rates of return, NRE accounts have always been attractive since they generate tax-free returns in India for investors.

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