Tax implications of holding a Current Account
Have you recently set up your business, initiated your Current Account, ready to begin your business? But your biggest concern is the tax implication on your Current Account.
To begin with, let us first understand the significance of a Current Account.
A Current Account is typically opened by business entities to carry out their banking transactions. It is a zero-interest account that allows unlimited deposits and withdrawals for businesses. The account aids these businesses with large volumes of cheque leaves, demand drafts, pay order services at zero to nominal costs. However, the Current Account holder is expected to maintain a minimum balance that varies from bank to bank. Although large businesses can’t do without a Current Account, even freelancers, startups and small organisations can benefit immensely by maintaining a Current Account.
As we mentioned earlier that a Current Account is a zero-interest account, there is no tax on Current Account.
Since we have established what is a Current Account, next let’s understand what is the main description of income tax.
Taxes in India can be classified as direct and indirect taxes. A direct tax is what you pay on your income directly to the Government, e.g. salary. A direct tax for individuals is income tax. The Government prescribes the rate at which the income should be taxed.
An indirect tax is collected by a third party and is paid to the Government on your behalf, e.g. restaurants, movie theatres, etc.
Below are types of incomes which are taxable :
• Other sources: interest on a savings bank account, fixed deposit
• House property: rental income
• Capital Gains: sale of capital assets – mutual funds, shares, residential property
• Business owners and professionals
We now know the various taxable incomes. Even though all your daily business transactions are operated from your current account, every Current Account tax-free as there is no interest earned or generated through it. However, the business owner will have to pay income tax on the funds earned by him or her through various other sources.
Now, let’s find out whether an NRI can set up a Current Account in India.
An NRI – Non-Resident Indian is permitted to open an NRO or NRE Current Account
NRE Current Account: A Non-Resident External Current Account can be opened by an NRI and is used if the NRI does not wish to take interest benefit on the foreign income earned outside India. The currency of this account is INR. However, there is no tax on Current Account for this type of account.
NRO Current Account: A Non-Resident Ordinary Current Account can be opened by an NRI and is used for the purpose where the NRI does not wish to take interest benefit on the income earned in India. However, the NRI is obligated to maintain an average monthly balance amount; there is no interest rate applicable. However, there is a tax implication in this type of current account.
A few banks like HDFC Bank provides this facility where there is a check on NRI Current Account tax limit.
Looking to open a NRI Current Account? Click here to get started.
Read more on how to keep your Current Account safe and secure here.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.