NRI status changed: Will NRE FD interest be taxable?

By Sohail Khan 29 September 2026, 12:45 pm

Synopsis

ET Wealth reader's query: I was an NRI until FY2024–25. After relocating to India, my residential status changed to ‘resident’ from FY2025–26. While I was an NRI, I invested in fixed deposits through my NRE account, and these deposits are due to mature in FY27. Will the interest earned on these NRE fixed deposits be taxable in India?

Image for My NRI status changed. Will interest earned on my NRE FDs be taxable in India? — Under FEMA, you become a resident from the date of arrival if you return for employment, business, or to settle in India. The 182-day rule applies to ordinary visits, not a return with an intent to stay. So the key question is whether your return amounted to “settlement” in India.

These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.

I was an NRI until FY2024–25. After relocating to India, my residential status changed to ‘resident’ from FY2025–26. While I was an NRI, I invested in fixed deposits through my NRE account, and these deposits are due to mature in FY27. Will the interest earned on these NRE fixed deposits be taxable in India?

Shubham Agrawal Senior Taxation Adviser, TaxFile.in: Section 10(4)(ii) exempts NRE interest only if you are “resident outside India” under the Foreign Exchange Management Act (FEMA), 1999, not based on your residential status under the Income Tax Act. Under FEMA, you become a resident from the date of arrival if you return for employment, business, or to settle in India.

The 182-day rule applies to ordinary visits, not a return with an intent to stay. So the key question is whether your return amounted to “settlement” in India. Since the NRE FD was never redesignated to Resident Foreign Currency Account (RFC), no exemption applies once you are a FEMA resident. Interest after that trigger date is taxable at slab rates.

Therefore, check when your FEMA residency changed and, if required, revise or update your tax returns to avoid future tax notices.

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My mother wants to encash fixed deposits and gift the money to my wife. Will either have to pay tax? If my wife invests it in RBI Floating Rate Bonds, in whose hands will the interest be taxed?— K. Icchaporia

Umesh Kumar Jethani Founder, ApkiReturn: A gift from a mother to her daughter-in-law does not attract income tax for either party. Your mother also faces no tax on making the gift, since she is only using her own money, on which tax was already paid when the FD interest accrued. When your wife invests this amount in RBI Floating Rate Bonds, the interest will not be taxed as her income.

Under Section 99 of the Income Tax Act, 2025 (replacing Section 64 of the 1961 Act from 1 April 2026), income from an asset transferred to a daughter-in-law without adequate consideration is added back to the transferor’s income. So the bond interest will be taxed in your mother’s hands, at her slab rate. If your wife reinvests this interest further, income from that second investment is taxable to her.

Since the bonds will be in your wife’s name, TDS will show against her PAN; your mother must claim credit for this TDS while reporting the clubbed interest in her own return, under Schedule SPI.

Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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