How is NRE income of foreign citizens taxed?

My son is a non-resident Indian (NRI) based in London for the past 12 years. He has income from NRE deposits and mutual funds and has been regularly filing income tax (I-T) returns. He has now obtained British citizenship and applied for OCI (overseas citizenship of India) status. What will be the implication of this on his Indian income? Will the interest income on NRE deposits continue to be tax free?

—Name withheld on request

As your son is based outside India, he would qualify as non-resident of India under the following circumstances:

His physical presence in India is less than 60 days during the relevant financial year; or his physical presence in India is less than 120 days during the relevant financial year if India-sourced income does not exceed ₹15 lakh; or his physical presence in India is less than 182 days during the relevant financial years if India-sourced income less than ₹15 lakh.

Implication on his Indian income: The change of citizenship from India to the UK will not impact his non-resident tax status in India . As a non-resident, he would continue to be taxable in India on the following incomes: Income accruing or arising in India; income deemed to accrue or arise in India; income received or deemed to be received in India.

Will the interest income on NRE deposits continue to be tax free?

Under the exchange control law, when a person leaves India for the purpose of employment or for carrying on business or for any other purpose indicating his intention to stay outside India for an uncertain period, he may be considered as a person resident outside India.

Under the India I-T law, interest income from Non Resident External (NRE) accounts will be exempt from income tax in India if the individual qualifies as a person resident outside India under exchange control law.

As your son will continue to be based outside India, he will qualify as a person resident outside India under exchange control law and interest income from NRE account will continue to be exempt from tax in India.

Sonu Iyer is tax partner and people advisory services leader, EY India.