Watch: NRE vs NRO Accounts for Returning NRIs: Which Account to Open and When to Convert
Returning to India? Learn which account to open, when RBI expects redesignation, and what happens to NRE and NRO deposits after your move.
The full write-up, with the numbers and the links.
Chapters
- 0:00 Introduction and NRE account
- 6:22 NRO account and key take aways
Transcript
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0:00 If you have ever wondered how to manage your money smartly while living abroad or after moving back to India, this video is for you. NRE, NRO, FCNR and RFC accounts. They sound similar or too confusing, but they all serve a very different purpose. Getting it wrong could lead to tax troubles or FEMA non-compliance. So let's break it all down for you. We will cover this topic in two parts. In the first part of the video, we will explain what a NRE NRO account means, who can open these accounts, the key benefits and features, pros and cons, as well as common mistakes that people make. By the end of the video,
1:02 You will have a clear idea on which account suits best for your needs as well as how to manage them properly. So let's start with NRE account which is also called non resident external account. This is a special bank account in India specifically designed for NRIs to park their foreign earnings in Indian rupees. The funds transferred to NRE accounts are held in Indian rupees but the money originally is the foreign income earned in abroad that you are planning to bring to India. So who can open the NRE accounts?
1:56 Well, it's exclusively for NRIs, non-resident Indians, PIOS, persons of Indian origin and OCIs, overseas citizens of India. Both individual and entities can open NE accounts as long as they meet the criteria. So under NRE accounts you can have four different types of accounts. Your savings account, current account, fix deposit account and recurring deposit account. Let's look at some of the key features and benefits. First repatriility. The principal amount as well as the interest earned is fully repatriable. meaning the funds in the NRE account can be transferred to abroad without any restrictions. Second, tax benefits. Income earned on the NRE
2:57 Accounts is completely tax-free in India. Third, joint accounts. You can hold an NRE account jointly with an another NRI, PIO or OCI holder. Now let look at the pros and cons of NRE accounts. First taxfree on the income earned on the NRE accounts in India. So it's completely tax-free. Second full repatriability. You're able to transfer the funds from your NRE account to abroad without any restrictions. Third, you can transfer any amount to your NRE account and typically the interest rate on the fixed deposits are higher than what you can get in abroad.
Read the full transcript (11 more sections)
3:51 Cons, you can't deposit income from India into the NRE account. Second, you can hold the accounts only with another NRI or PIO, but you can't hold the accounts with the resident of India jointly. Third, it's subject to INR depreciation because you are holding the funds in Indian rupees. Now, let's look at the permissible deposits and withdrawals from the NRE accounts. First, inward remittances from a foreign bank, whether it's your savings or earnings, is completely allowed. Second, a transfer from another NRE account or an FCNR account is allowed. You can transfer money from your NRO account. However, you have to
4:51 Meet the tax compliances. You have to file certain forms and do declaration. You need to work with your CA to complete this. Then you can transfer money from your NRO account to an NRE account. As far as the withdrawals or the debits, you can use the funds in the NRE account for your day-to-day expenses in India as well as for permissible investments. You can repatriate the money in your NRE accounts back to abroad without any restrictions. Now let's look at some of the common mistakes that people make. First, you can't deposit income earned in India whether it's rent, pension, dividends into your NRE account. Second, the interest on the NRE accounts are completely tax-free. Third, you can't jointly
5:53 Withhold your NRE account with a resident of India. If you want to open a NRE, NRO, FCNR or an RFC account while living in abroad, we have made the process as smooth as possible by partnering with IDFC. So if you are interested to open an account with IDFC, we have a link in the description
6:24 Below. Now that we have covered NE account, let's look at NRO account which is equally important for managing your income in India. An NRO account which is also called non-resident ordinary account. It's a rupee account for NRIs, PIOS and OCIs to manage the income earned in India. This includes rents, pensions, dividends and any other source of income from India. Unlike NRE accounts, NRO accounts are primarily designed for managing the income earned in India and they come with certain restrictions in terms of repatriation and taxation. So who can open the NRO accounts? Well, an NRA, PIO or an OCI holder can open the NRO account. Let's
7:27 Talk about some of the key features and benefits of the NRO accounts. First, the income management. The income that you earned in India can be deposited into NRO account like your rents, dividends, etc. Second, repatriation. You can repatriate the money from your NRO account back to abroad. But there are certain limitations. You can transfer up to $1 million US in any year. That includes any sales proceeds, your interest, principle, etc. Third, taxation. Interest earned on the NRO accounts is subject to TDS which is called tax deducted at source which is typically 30%.
8:21 Last, you can hold an NRO account with either a residents or with another NRI and you can held it jointly with any of them. And an NRO account you can have these four different types of account savings, current, recurring and fixed deposit accounts. Now let's look at the advantages and disadvantages of NRO accounts. Pros, it's a simple way to manage your funds in India or the income that you earned in India. Second, you can jointly hold an NRO account either with an NRA or with a resident of India. Coming to cons, the first repatriation is limited and tedious paperwork for any foreign transfers.
9:16 Second, taxes apply on the income earned on the NRO accounts. Third, you can't avoid TDS, which is tax deducted source I unless you are proactive. Let's talk about the permissible credits and debits for the NRO accounts. In terms of the credits, Indian income like a rent, dividends, pensions, etc. can be created into the account. Inward remittances from abroad is allowed. You can transfer money from an NRE FCNR accounts if applicable. As far as the debits, you can use the funds in NRO accounts for your day-to-day expenses for investments and so on. You can repatriate the money but there are certain limitations and require tedious paperwork and it's subject to $1 million US per year after completing certain documentation like
10:17 15A 15 CB and so on. Now let's talk about some common mistakes that people make. The interest earned is taxable and the TDS is deducted at source. There is also a limitation on the amount of money that you can repatriate which is $1 million US per year. Here is a quick comparison of NRE and NRO accounts. Both of them holds the account in INR. The source of fund is foreign income only. In the case of NRE, in the case of NRO, it's foreign income plus Indian income. There is no tax on the income earned on the NRE account. But there is a 30% TDS on the NRO accounts. There is an unlimited repatriability. In the case of NRE account, there are certain restrictions and tedious paperwork that you'll have to do for NRO accounts. You can hold a NE account jointly with an
11:17 NRI. Whereas in the case of NRO, you can hold the account jointly with an NRI or with a residence. So the key points one can hold both an NRE as well as an NRO account. An NRO account is for getting your funds from Indian income rents and all that stuff will be deposited into an NRO account. NRE is primarily for your foreign remittances which comes into an NRE account and from there you can invest into any investments or payments and so on because the money in the NRE account is fully repatriable. You need to close or convert your NERO accounts after you move back to India and it has to be done as soon as possible and this is a requirement or a compliance from FEMA and the FEMA defines the residency as your intent. If you have an intent to move back to India, then you are
12:18 Considered as a resident of India and you need to convert the NERO accounts to a resident accounts as soon as possible. Please note this is not based on your income tax resident status. It is based on FEMA resident status which is the intent of your plan to move to India, stay in India etc. Last you can open these accounts from abroad easily and u so in the second part of the video we will cover in FCNR and RFC accounts how to hold your foreign currency safely earn tax-free interest and plan your return like a pro. If you are interested in opening the NRE, NRO or any of these NRI bank accounts or like Gibsy accounts while living abroad, we have partnered with IDFC Bank to make this process as smooth
13:20 As possible. So check out the link in the description below on how you can open up a IDFC NRA banking account. So until next time, take care. Have a great day.
