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I have read from lot of places that transferring funds from NRO to NRE is possible given correct documents are provided. However, when I visited my CA to get the 15CB form, he had doubts about my procedure.

Here is what I am simply doing-

  1. Had some money in NRE account
  2. Transferred to NRO part by part
  3. Widhrew cash from NRO and gave to relative in need
  4. Relative returns cash in NRO part by part
  5. I want to transfer to funds form NRO back to NRE
  6. The part by part us spread over some time.

So the source of the funds is originally from NRE account. However, the CA feels that since my withdrawal and deposit mechanism in NRO is cash, I might be subject to questioning.

Is there any issues in doing the above?

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    Did the relative return cash to you which you then deposited into the NRO account, or did he/she make a deposit directly into the NRO account? I presume there was no documentation that this was a loan; you merely helped out Uncle Shyam when he needed the money. As far as the tax man is concerned, you have income that might be taxable, or it might be a nontaxable gift or a taxable gift depending on the exact relationship between you and Uncle Shyam. In short, you need to explain more to the CA, and possibly to the Indian tax authorities. – Dilip Sarwate Feb 3 '17 at 19:57
  • Since I am not in physically in the country, I cannot deposit the cash myself. The relative I am talking about is a close relative and we maintain the same household address in India. I do not mind explaining everything to anybody if it comes to that. I just want to avoid the hassle of questioning in the first place – haunteddevil619 Feb 6 '17 at 15:14
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I have read from lot of places that transferring funds from NRO to NRE is possible given correct documents are provided.

Yes this is correct. The key document 15CB establishes that you have paid taxes that were due before money is transferred from the NRO account to the NRE account and/or are repatriated.

Here is what I am simply doing-

Steps 3 & 4 more so the step 4 can be seen as new income.

So the source of the funds is originally from NRE account. However, the CA feels that since my withdrawal and deposit mechanism in NRO is cash, I might be subject to questioning.
Is there any issues in doing the above?

The CA is right. The Cash Withdrawal and Cash Deposit has broken the link between the money withdrawn and the money deposited. It could easily be the case that the Cash Withdrawals were spent on expenses and the Cash Deposit is new (taxable) income to you. This new income needs to be declared and the taxes paid.

If you Uncle is a close relative (the exact relationships that are called close relatives are defined by law), the return of the money can be declared to be a gift from your Uncle to you and no taxes are due from you on the money. If the funds are large, it is advised to have a gift deed. It is not a simple matter of creating a gift deed stating that your Uncle has given you a gift; your Uncle has to show how he acquired so many assets that he gave you some money as a gift and whether appropriate taxes were paid by him. If your Uncle is not a close relative, he can still gift you up to Rs 50,000 per year without you having to pay any income tax on the money received, but again, a gift deed would be needed to account for the cash deposits.

In short, keep speaking to your CA. He will advise you on the best course of action.

Related Question

Transfering money from NRE account in India to family member

  • I corrected a few typos and minor grammatical errors, and a few lines of additional explanation. Please restore the original version if you do not agree with the added explanations. Oh, and a +1 of course. – Dilip Sarwate Feb 4 '17 at 15:09
  • How large of a funds are you talking about to have a gift deed? This is a close relative that I am talking about that stays in the same household. I do not know though if the taxes are paid on the gift though. Can you tell me different options for these situations? Thanks! – haunteddevil619 Feb 6 '17 at 15:23
  • I just read the related question. The stipulated conditions apply to me exactly, but I followed the wrong procedure. Although I have provided a loan that is interest free, I did not do it though proper means. My bad. I guess I will have to see gift option. Can you please give me more details on that? Thanks! – haunteddevil619 Feb 6 '17 at 15:26
  • @haunteddevil619 Given that you are in a situation because you didn't follow the procedure ... It is best for you to work with your CA and take corrective action. I brought up gift as a reference, if it is deemed that you did gift tax to circumvent actual loan, you may land into worse situation – Dheer Feb 6 '17 at 16:11

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