Through this blog we shall make you aware about the Non Resident External Account or NRE Account and Non Resident Ordinary Account or NRO Account.
Few days back I met my Non Resident friend, he was just confused on how to repatriate his income earned overseas back to India. In addition to it, he seemed worried about managing his India based earnings as well.
So,while I was clarifying his queries,it came to my mind :
Why not share these important facts with you as well that might be useful to you ?
So,through this blog I have tried to clear all the basics that you might need to know about managing your earnings as a Non Resident Indian(NRI).
Who is a Non Resident ?
As per Foreign Exchange Management Act,a person is a Resident of India if he stays for 183 days or more in India during the preceding financial year starting from 1st April to 31st March.But,if he does not fulfil this condition i.e. he is in India for less than 183 days,he shall be considered as a Non Resident.
As per the Income Tax Act 1961,a person is a Resident of India if :
- He has stayed 182 days or more in India in the current financial year or
- He stayed in India for 60 days or more in the previous financial year and 365 days or more in the preceding 4 years (The 4 years shall be counted from the year before the financial year which is into consideration).
So,if you satisfy any of the above conditions,then you become an Ordinary Resident.In case you don’t satisfy them, then you shall be considered as a Non Resident Indian.
Once you are clear about your status,that is if you are a Non Resident Indian(NRI) you have primarily two options to open a Rupee account in India :
- Non Resident External Account or NRE Account.
- Non Resident Ordinary Account or NRO Account.
Here,one thing you need to be clear is that both NRE Account and NRO Account are Indian rupee accounts.
What is NRE Account and NRO Account ?
1. Non Resident External Account or NRE Account :
In simple words,NRE Account is a Savings account maintained in Indian rupees to manage or invest your overseas earnings back in India.The biggest advantage for opening an NRE Account is that the Interest earned on it is not taxable in India.Further,the Principal an Interest earned are fully repatriable i.e.transferable from India to other countries.
Features of NRE Account that will help you understand it in detail :
- Funds including Principal and Interest amount are freely repatriable from NRE Account.
- Interest earned in an NRE Account is tax free,so you can enjoy the tax benefit on your Interest earned.
- The account is maintained in Indian rupees.
- A Joint NRE account can be opened in the name of two Non Residents only.So,you cannot open a Joint account with a Resident Indian.
So,basically NRE Account is the most convenient method if you want to park your foreign earnings in India and enjoy full and free repatriability of your funds along with tax benefits as well.
2.Non Resident Ordinary Account or NRO Account: NRO Account is also a Savings Account maintained in Indian rupees to manage your income earned in India i.e.your Indian Income like Rent, dividend, pension etc. As an NRI,if you have any income arising in India,you can deposit it in an NRO Account only.You are not allowed to deposit the same in NRE Account.Hence,even if you stay abroad,you can easily manage your Indian earnings through an NRO Account.
Features of NRO Account that will help you understand it in detail :
- NRO Account has restricted repatriability. The funds in NRO Account can be repatriated upto USD 1 million(net of taxes)per financial year for any bonafide purpose.
- Unlike NRE Account,the interest earned in NRO Account is fully taxable.
- Tax deducted at source or TDS @ 30.9% per annum is applicable on Interest earned.This is subject to DTAA(Double Taxation Avoidance Agreement)with other countries.
- This account is also maintained in Indian rupees.
- It can be held jointly with another Non Resident or a Resident Indian as well.
- A Person of Indian origin(PIO) and Overseas Citizen of India(OCI) can also open an NRO account.
As an NRI,if you have an Indian Income also,this is the best option to park your earnings.Moreover,you can have a joint account with any of your close relatives in India.
If you are planning to go abroad and become an NRI or you already are an NRI,this blog will surely be of some help to you.
Feel free to share your valuable feedback in our comment section below.
Also,go through our popular blog post to help NRIs in their Investment planning : 7 Best Investments for NRIs looking to invest in India !
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