NRIs, change your account type without delay

SC Vasudeva

NRIs, change your account type without delay

When does it become necessary to convert a savings bank account to an NRO (non-resident ordinary) account?  What is the procedure for doing this? Is there any penalty if one fails to do so? 

— RB Singh

There is no time limit for converting a savings bank account to an NRO account.  However, it is advisable to do it immediately after one becomes a non-resident. There is no specific penalty provided for not converting an ordinary savings account into a non-resident ordinary account. However, Section 13 of the Foreign Exchange Management Act, 1999 provides that if any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the RBI, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to Rs 2 lakh where the amount is not quantifiable. Where such contravention is a continuing one, further penalty that may extend to Rs 5,000 for every day after the first day during which the contravention continues. It is, therefore, desirable that an account should be converted into an NRO account without delay.

I am a senior lecturer and my annual salary is Rs 8,00,000. It is also my total income. I worked with two organisations. With the first employer, I have to pay tax as advance tax. Which form should I use? I pay a rent of Rs 1,20,000 annually. The second employer gives me Rs 7,500 per month as HRA, but for six months only. What is my HRA deduction under 80GG? 

— Ravi Gupta

The facts given in the query indicate that you are entitled to a HRA of Rs 7,500 per month, but the same was paid for a period of six months only. It may be possible for you to claim the deduction under Section 80GG of the Income-Tax Act, 1961 for six months only. The deduction allowable in your case would work out as under, presuming that you have received salary of Rs 4,00,000 from each of the employers. It is presumed that your query is in respect of assessment year 2017-18 (FY ending March 31, 2017).

Rent paid for six months: Rs 60,000

Less: 10% of Rs 4,00,000: Rs 40,000

Rent paid in excess of 10% of total income: Rs 20,000

25% of total income for six months (Rs 4,00,000 / 4): Rs 1,00,000

Ceiling amount of Rs 5,000 per month (Rs 5,000 x 6): Rs 30,000

Rent actually paid: Rs 60,000

Least of the above is Rs 20,000, which may be allowable as a deduction under Section 80GG of the Act. As far as advance tax is concerned, you can deposit the same online or use challan no. 280 for the purpose.