Article explains Benefits Of Opening an NRE Account in India, Eligibility Criteria to Have an NRE Account, What Happens to The NRE Account When You Come to India Again, What is an NRO account, Taxation Of NRO Account in India and Differences Between NRE AND NRO Accounts.

A Non-Resident External (NRE) Account is a bank account that an NRI can open in an Indian scheduled bank to deposit their foreign earnings in India. These accounts can be savings accounts, current accounts, recurring deposits, and fixed deposit accounts. These accounts can be opened individually or jointly in the name of two NRIs. These accounts are highly liquid, in nature and NRIs must maintain at least Rs. 75000 in their NRE account during the year.

Benefits Of Opening an NRE Account in India:

According to the FEMA guidelines, an NRI is restricted to open their regular savings account in India. Hence NRIs who earn foreign currencies in India, can open, and deposit their earnings in an NRE account. This account will help NRIs to send the money earned outside India and save them in Indian rupees.

Also, this account allows NRIs to freely repatriate all their money back to their country of residence in their NRE account.

Moreover, it will enable an NRI to invest in India. Also, an authorized family member in India can easily access the funds available in the account.

Eligibility Criteria to Have an NRE Account:

Following are the eligibility about the eligibility of opening an NRE savings account in India

1. The person Should be a Non-Resident Indian (NRI).

2. Indian citizens can reside in a foreign country for the purpose of studies, employment, or business.

3. Employees of the UN organizations Government employees of India or public sector undertaking deputed outside India

4. Person of Indian origins employed in foreign airlines.

5. Spouse of a Non-Indian resident or spouse of a Person of Indian Origin.

What Happens to The NRE Account When You Come to India Again?

When an NRI comes to India for a short visit, they can open an NRE savings account. However, if the NRI comes back to India for good, they are not allowed to maintain the NRE savings account. They will have to convert to an Indian bank account. In case the NRI wants to hold the money in foreign currency, they can convert it to a Resident Foreign Currency (RFC) Account.

What is an NRO account?

A Non-Resident Ordinary (NRO) account is an account that helps non-resident Indians manage the income they earn in India. The interest, dividends, rents, etc. earned in India can be deposited in these accounts. The account can receive deposits in both foreign currency as well as Indian currency.  NRO accounts can be in the form of savings accounts, current accounts, or fixed deposit accounts. Also, an NRI can open an NRO account jointly with a resident or a non-resident Indian.  The account holders must maintain at least Rs. 75000 in their NRO account during the year.

Taxation Of NRO Account in India:

The interest income received in NRO accounts is subject to tax deducted at the source. And the interest income received during the year will be added to the depositors’ total income and is taxable at the respective income tax slab rate. Moreover, the account will also be subject to a gift tax and wealth tax.

Differences Between NRE AND NRO Accounts:

Definition: NRE accounts are used for depositing income earned from India as well as abroad. Whereas NRO accounts are used for depositing income earned only in India.

Repatriability: The deposits and the interest earned on the NRE account are highly liquidated and can be easily repatriable. Whereas One can transfer or repatriate USD 1 million in a year from an NRO account.

Taxation: Interest earned on deposits earned in an NRE account is exempt from tax in India. Whereas the income from the NRO account is taxable. However, this tax can be avoided by availing of benefits under the Double Taxation Avoidance Agreement if any.

Deposit and Withdrawal rule: One Can deposit in foreign currency and withdraw in Indian Rupee in NRE accounts. Whereas in an NRO account one can deposit in Indian as well as foreign currency. However, withdrawals should be in Indian currency.

Transfer of Funds: One can transfer funds from an NRE savings account to another NRE savings account and to an NRO account. Whereas funds from one NRO account can be transferred to another NRO account only.

The author Sushant Gangurde is a legal analyst @Taxblock India who aims to educate people about various tax laws and financial planning.

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