Bank Accounts for Non-Residents
Non-Resident Indians often need to keep an account in India, in order to meet expenses for their parents, or for investments in India or for their retirement planning or for various other reasons. On a number of occasions, it has been seen that people are confused with respect to the different kinds of accounts that they can maintain and how the same can be operated.
With this article we try to simplify the two major kind of accounts available to Non- Residents – NRE and NRO, with their salient features and the use case.
Before understanding the same few terms need to be understood.
- NRI – A Non-Resident Indian – A citizen of India who is resident outside India.
- PIO – A Person of Indian Origin- A citizen of any country other than Pakistan or Bangladesh who is resident outside India and satisfies any of the following:
- Was an Indian citizen by virtue of Indian Constitution.
- Belonged to any territory that became part of India after Independence.
- Who is a child/grandchild/ great grandchild of an Indian citizen or a person referred to above.
- Is spouse of an Indian citizen or a person referred above.
- Current Income – Incomes like rent, salary, interest, pension, etc.
- Former or Survivor basis – In this type of Joint account only the first or primary account holder can access and operate account till they are alive.
Normally Non-Residents are not permitted to open a Bank account in India, however, general permissions have been granted to Banks in India to open the following accounts:
a. Non-Resident External Rupee Account (NRE)
b. Non-Resident Ordinary Rupee Account (NRO)
Comparison of various features of NRO and NRE Account
| BASIS | NRE | NRO |
| Currency | Rupee Account – to be maintained in INR only | Rupee Account – to be maintained in INR only |
| Who can open | NRI or PIO | Any person resident outside India |
| Form of account | Any form – Savings, Current, Recurring, FD, Etc | Any form – Savings, Current, Recurring, FD, Etc |
| Permissible Credits (Inflow) | -Foreign Inward Remittances
-Accrued Interest -Interest on Investments -Current Income -Transfer from other NRE account -Maturity proceeds of Investments (sub to conditions) |
-Foreign Inward Remittances
-Accrued Interest -Legitimate Dues in India (incl Current Income) -Interest on Investments -Transfer from other NRE account -Maturity proceeds of Investments (sub to conditions) – Sale proceeds of assets in India (incl Immovable property) -Loan from residents up to USD 250000 -Sale proceeds of Gold/Silver brought into India by NR and cleared by Customs |
| Permissible Debits (Outflow) | -Local Disbursements
-Remittances outside INDIA -Transfer to other NRE account -Investments in India |
-Local Disbursements (incl Investments in India)
-Remitting Current Income Outside India* -Remittance to NRE* -Remittance outside India of USD 1 MN per FY by an NRI (for bonafide purpose) * |
| Taxation | Funds in NRE account and accretions on the same are not taxable. | Accretions in NRO Account are chargeable to tax in India. |
| Loans against balance in Accounts (Permissible use) | Loan against balances in such accounts may be used for
a. Personal Purposes or business activities (except agricultural/plantation, real estate or relending) b. Making Investments in India on non-repatriation basis c. Acquiring flat or house in India for own use.
|
Loan against balances in such accounts may be used for
a. Personal Purposes or business activities (except agricultural/plantation, real estate or relending)
|
| Loans outside India | Banker may allow its branches outside India to grant loan to non-resident depositor (or to a third party at depositor’s instance) against the security of funds lying in the NRE account in India. | No such facility |
| Change of Residential Status | In case of change of residential status from Non-Resident to Resident, NRE account shall be redesignated to Resident account. | In case of change of residential status from Non-Resident to Resident, NRO account shall be redesignated to Resident account. However, in case of change of residential status from Resident to Non-Resident, Regular Resident accounts shall be converted to NRO account and not NRE. |
| Payment to Nominee on demise of account holder | Balance in account can be remitted to the non-resident nominee abroad or to an NRE/NRO account of non-resident nominee.
In case of resident nominee, the amount may be paid to his resident account only. |
Balance in account can only be transferred to an NRO account of the non-resident nominee.
In case of resident nominee, the amount may be paid to his resident account only. |
| Operations through Power of Attorney (PoA) | PoA holder may make the following operations:
-local payments -Remittance abroad to the account holder -make investments in India on behalf of account holder. PoA is strictly not permitted to: -Transfer funds from one NRE to another NRE account. -Gift to a resident on behalf of account holder -Repatriate money outside India to any account other than account holder. |
PoA holder may make the following operations:
-local payments (incl investments) -Remittance of current income abroad to the account holder PoA is strictly not permitted to: -Transfer funds from one NRO to another NRO account. -Gift to a resident on behalf of account holder -Repatriate money outside India to any account other than account holder. |
*Transfers can be made on furnishing Form 15CA and 15CB only.
Salient Features
1. Opening of these accounts in the names of Individual or Entities from Pakistan or Bangladesh requires special permission from RBI.
2. A student going abroad for studies is considered as an NRI and is eligible for opening both NRE and NRO account.
3. There are several factors which impact the determination of change of residency under FEMA, however, usually when a person returns to/leaves India for the purpose of taking up employment or for carrying on business or vocation or for any other purpose which indicates intention to stay in India/other country for an uncertain period, the residency shall be deemed to change from Non-Resident to Resident or vice versa.
4. Both NRE and NRO accounts may be opened on joint basis between two NRI or PIO or an NRI and a PIO. A joint account may also be opened by an NRI or a PIO with a resident relative on former or survivor basis.
5. In case of an NRE account, remittance abroad by a resident nominee may be permitted after obtaining due permission from RBI for bonafide purpose.
How to choose which account is best for one’s use?
Often, the answer to whether an NRI should have an NRE or an NRO account is hidden in the end use of the same. It is a customized choice and a “one size fits all” approach cannot be taken up for the same. However, prime consideration may be given to the following:
a. In case a person has all his income outside India and wants to park money in India for future use the same may be done through an NRE account as receipt of money would always be outside India
b. In case a person has Indian Income which he wishes to use in India, the same shall be conducted through an NRO account. However, if he wishes to use such income outside India, an NRE account would be a more appropriate choice where funds can be parked after payment of due taxes.
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