New Delhi: In his budget speech, the FM announced the withdrawal of tax exemption on income earned by way of interest on non-resident (external) deposits.

Earlier, all interest earned on NRE deposits in banks in India was tax-free. This, however, will no longer be the case from 2005-06.

Interest income from these deposits will be clubbed with the other income of NRIs earned in India, and be subject to income tax.

Over the last few years, NRE deposits were hugely popular investment options with NRIs. Not only did the deposits earn substantial interests, but were also tax-free and fully repatriable.

Moreover, since they were rupee denominated, they had the opportunity to gain on conversion to dollar in the case of dollar depreciation against the rupee.