Non-resident Indians (NRI) comprises of non-residents under FEMA and non-Indian citizens of Indian Origin (PIO). Thus NRIs can have three types of bank accounts:
- Non-resident Ordinary (NRO)
- Non-resident External (NRE)
- Foreign Currency Non-Resident (FCNR)
Opening an NRO account
An NRI can open an NRO (Non-Resident Ordinary) bank account at any point of time or can also change his existing bank account into an NRO account. A citizen of any other country can open an NRO account during his stay in India. But citizens of Pakistan and Bangladesh require prior permission of RBI before opening an NRO account.
Joint NRO Account
NRO account can be either a single account or a joint account. A joint NRO account can be opened with a resident or non- resident of India. It can be savings, current, recurring or FD account and operate in Indian Rupees. These accounts can only be used by the account holder or holders (in case of a joint account) or a resident who has a power of attorney to hold the account.
Transactions allowed in your NRO account
Money can be remitted from abroad to one’s NRO account through proper banking channels. You are also permitted to deposit up to 5000 dollars foreign currency with a currency declaration form during your stay. Income earned through rent, dividends, pension, income earned through the sale of your Indian assets and gifts/loans taken from an Indian in Indian currency, can be credited to your NRO account.
You can send up to an amount of $ 1 million abroad from your NRO account every year after paying income taxes if any. The balance accumulated in your NRO accounts can be used in payment of taxes, rent and also for investing in India on non-repatriation basis. Once you return to India and become a permanent resident, you are required to immediately ask the bank to designate your NRO account into an ordinary account.
Eligibility to open an NRE account
The NRIs themselves can only open an NRE (Non-Resident External) account. So any third person cannot hold the power of attorney of an NRE account on behalf of the NRI. You can maintain more than one NRE account in India and are dominated in Indian currency. It can be either single or Joint account (only with other non- residents). Citizens of all other countries except Pakistan and Bangladesh can open an NRE account. It can be savings, current, RD or FD accounts.
Transactional Limit on your NRE account
There is no limit on the money remitted to your NRE account from abroad in any permitted currency. Similarly, cheques drawn in the foreign currency account, traveler cheques issued in abroad and sale proceeds of investments on repatriation basis can also be added to your NRE account. NRE accounts are very convenient as there is no limit and no prior permission is required to transfer cash from one NRE account to another or for amount remitted to outside India. This is the reason why RBI allows limited credits in the NRE account. You can also avail loans against the balance in your NRE accounts in India as well as in abroad.
You can easily transfer the balance from your NRE account to NRO account, but transferring balance from your NRO account to NRE account requires a specific procedure to be followed. Moving your money to NRO account, it loses its free transferability. So you must think before transferring your money to an NRO account.
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Tax on Interest in India
In India, interest earned on your NRO accounts is entirely taxable. Tax is deducted on your earned interest at the source itself by the banks while depositing any amount to your NRO accounts. This is also applicable to interest gained on savings bank accounts, but is exempted from TDS for resident taxpayers.
Interest earned on NRE accounts is exempted from taxation as long as you are a non-resident. As soon as you become the resident of India your interest earned will be entirely taxable unless you take prior permission from RBI.
Comparison between NRE and NRO
- Both can be in the form of savings, current or FDs
- NRO accounts can be opened by an NRI or a resident of India who has acquired power of attorney to hold the account. But NRE accounts can only be opened by the NRI himself
- Interest earned on NRO accounts is taxable, and that of NRE accounts are tax exempted.