Tax implications of holding a Current Account

1. No Interest Earnings, No Tax Liability

Since a Current Account is a zero-interest account, there is no income generated from interest, which means there is no tax liability directly associated with the Current Account itself. The primary purpose of a Current Account is to facilitate business operations rather than to earn interest. Therefore, the account holder does not need to worry about paying taxes on interest income, as is the case with savings accounts or fixed deposits.

2. Income Tax on Business Earnings

While the Current Account itself does not attract taxes, the income generated by the business, which is deposited into the Current Account, is subject to income tax. Business owners and professionals must report their earnings to the government and pay taxes according to the prescribed rates under the Income Tax Act. The income deposited into the Current Account, whether from business operations, professional services, or other sources, is taxable under the relevant income tax slab.

3. Types of Taxable Income

It’s important to note that while the Current Account is not taxed, the income flowing into the account may be subject to various types of taxes, including:

• Salary: Income earned as salary from employment.

• Interest Income: Interest earned from savings accounts, fixed deposits, or other investments.

• Rental Income: Income earned from renting out property.

• Capital Gains: Profits earned from the sale of capital assets like mutual funds, shares, or property.

• Business Income: Earnings from business operations or professional services provided.

Non-Resident Indians (NRIs) can open specific types of Current Accounts in India, each with its own tax implications:

1. NRE Current Account (Non-Resident External)
   
   An NRE Current Account is used by NRIs to park foreign income earned outside India. This account is maintained in Indian Rupees (INR) and offers the advantage of easy repatriation of funds to the NRI’s country of residence. Importantly, there is no tax liability on the NRE Current Account as it does not earn interest and the income is sourced from outside India.
   
   

2. NRO Current Account (Non-Resident Ordinary)
   
   An NRO Current Account is meant for NRIs who have income originating from within India, such as rental income, dividends, or business profits. While the NRO Current Account does not earn interest, any income deposited into this account is taxable under Indian tax laws. NRIs holding an NRO Current Account must maintain an average monthly balance as specified by the bank, and they are subject to applicable tax rates on the income deposited in the account.
   
   A few banks like HDFC Bank provide 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.