51. Clarification regarding exemption of interest on Non-Resident (External) Accounts in case of joint account holders
Circular No. 592 was issued by the Central Board of Direct Taxes on 4 February 1991. Its subject is 51. Clarification regarding exemption of interest on Non-Resident (External) Accounts in case of joint account holders.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Holds that interest on a Non-Resident (External) Account held in joint names remains exempt under section 10(4)(ii). Joint holders do not become an association of persons merely by holding the account jointly, so the word 'individual' in the clause does not defeat the exemption; each joint holder gets it provided he satisfies the other conditions of the section for himself.
Some Assessing Officers were denying the exemption because section 10(4)(ii), inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989, uses 'individual' where the earlier section 10(4A) had used 'person', and it was argued that joint holders form an association of persons.
51. Clarification regarding exemption of interest on Non-Resident (External) Accounts in case of joint account holders
1. Section 10(4 )(ii) of the Income-tax Act, 1961 provides for exemption from income-tax in the case of an individual, who is a person resident outside India as defined in clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), on any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the said Act and the rules made thereunder.
2. The issue, whether the interest income on moneys standing to the credit in Non-Resident (External) Accounts in joint names is exempt from income-tax under section 10(4)( ii) of the Income-tax Act, has been raised before the Board as some Assessing Officers are not treating such interest income as exempt from income-tax. The controversy has arisen because of the use of the word "individual" in section 10(4)( ii), inserted by the Direct Tax Laws (Amendment) Act 1987 with effect from 1-4-1989, which was not there in the earlier section 10(4A). It is argued that the interest on Non-Resident (External) Accounts in joint names, which was exempt from tax prior to 1-4-1989 because of the use of the word "person", shall not be exempt now because such joint account holders constitute a separate entity, viz., ‘Association of Persons’ and cannot be said to be individuals.
3. The matter has been examined and it is clarified that the joint holders of the Non-Resident (External) Accounts do not constitute an association of persons by merely having these accounts in joint names. The benefit of exemption under section 10(4)(ii ) of the Income-tax Act will be available to such joint account holders, subject to fulfilment of other conditions contained in that section by each of the individual joint account holders.
Circular : No. 592, dated 4-2-1991.
When an Assessing Officer brings joint NRE account interest to tax, and when a bank considers whether to deduct on such interest.
Source: the Income Tax Department’s own published text — its page for this instrument.