What is an NRI Account?
A Non-Resident Indian account is a bank account held in India by a non-resident Indian. As per the condition, the individual will be treated as an NRI when
i) He is in India for less than 182 days in a financial year; or
ii) He is in India for less than 365 days immediately preceding 4 years and for less than 60 days during that year
With a savings account, non-resident Indians can transfer foreign currency to India using NRI accounts. In addition, numerous NRI account categories enable NRIs to save money earned in India or manage repatriated income in India.
Types of NRI Accounts
Non-Resident Indians have access to three types of bank accounts in India: NRE (Non- Resident External Account), NRO (Non-Resident Ordinary Account), and FCNR (Foreign Currency Non-Resident) bank Account. The primary distinctions between these categories of accounts are listed below –
1. NRE Account
Non-Resident External (NRE) Accounts are rupee denominated accounts that NRIs can establish. The NRE account can be used to deposit foreign currency earnings. An NRE account is highly liquid and permits the full repatriation of funds to the NRI’s country of residence when necessary.
Consider the following example in order to better comprehend it:
Ms.Mrigakshi is currently employed in the United States, whereas her dependent mother resides in Guwahati. Each month, she transfers $1000 in Indian currency to her mother’s NRE Account. In light of the month’s prevalent exchange rate of 1 USD = 82 INR, her $1000 remittance would be held as 86,000 in her NRE Account.
Taxation – NRIs in India are exempt from paying tax on the interest earned on their NRE accounts. If the NRI becomes a resident of India during the fiscal year, the entire interest would be subject to taxation.
2. NRO Account
The Non-Resident Ordinary (NRO) Account is a Non-Resident Indian (NRI) account denominated in Indian rupees. Through this NRI bank account, it is possible to manage income earned in India. This account allows an NRI to deposit dividends, interest, and other income earned in India. This account facilitates international money transfers. Both Indian rupees and foreign currencies can be deposited. However, withdrawals are only accepted in Indian rupees.
For instance, Mr. Shreyas, an NRI residing in the United States, has leased Mr. Joseph his apartment in Mumbai. To receive rent income from such a tenancy, Shreyas must establish an NRO account into which Joseph will deposit the periodic rent amount. The interest amount can be repatriated, but the principal amount is subject to certain restrictions. One million dollars is the utmost amount an NRI may transfer in a given fiscal year.
Taxation – In India, interest earned on an NRO account is taxable. On the interest earned, 30% plus any applicable cess and surcharge will be deducted as TDS. By filing the Income Tax Return in India., the NRI can claim a TDS credit. NRIs having NRO accounts in India are eligible for a Section 80TTA tax deduction. According to this section, a tax deduction can be claimed for interest income up to Rs. 10,000 earned in a fiscal year.
3. FCNR(B) Account
A Foreign Currency Non-Resident Bank Account is essentially a Fixed Deposit Account for NRIs. An FCNR account is only available to NRIs who hold an NRE or NRO account and is regarded as a lucrative option because it encourages foreign remittances. An attractive feature of an FCNR account is that funds can be deposited in permitted foreign currencies, and the interest rate is entirely dependent on the type of currency deposited.
Funds held in this account including interest earned thereon are fully repatriable.
Taxation – According to Indian law, the interest earned on an FCNR account is exempt from taxation.
Who should open an NRI Account?
Individuals with a source of income in India are able to establish an NRO account to deposit their funds. Aside from this, NRIs who have dependents in India or who intend to return after a certain period must establish an NRI account to facilitate remittances.
In addition, individuals who wish to participate in the stock market in India must establish NRI accounts to facilitate such transactions. Additionally, these terms may vary slightly among financial institutions. Therefore, individuals should conduct proper financial planning and assess their needs, then deposit funds in the most suitable and finest NRI account.