This magnificent piece of note is submitted by one of DaytodayGK’s readers MYSTERY GIRL. Please read it carefully and don’t forget to thank her.
Various accounts maintained by NRI( non resident Indians) in India:
Let us take an example of NRI Mr. Raj koothrappali (sorry can’t think up of any other name 😛 ) suppose that he is facing two situations :
- He has parents in India to whom he want to send money which he earned abroad.
- Also he has some property in India which he has given on rent and is earning income on it.
Different problems have different solutions, so there are different account to deal with the above problems.
1st type: NRE account (Non resident external account):
NRE account is chosen when you want to park your overseas earnings remitted to India converted to Indian Rupees.
- Deposits in NRE account is in foreign currency but the accounts are maintained in rupees. Foreign currency is converted to Indian rupees at the prevailing foreign exchange rates when the money is deposited into the account. NRE accounts offer high interest rates and that interest is not taxable in India.
- you cannot deposit money from sources in India such as house rent or pensions in this account. For this there is another type of account (NRO account) which is explained below.
- Interest income earned on the money in a NRE account is non-taxable in India.
2nd type: NRO accounts (Non resident ordinary accounts):
- They are mainly used for keeping India based earnings of NRIs in India. They are appropriate for NRIs who have had earnings in India earlier and became NRIs later as well as NRIs with income from sources in India such as house rent, pensions etc. NRO accounts are maintained in rupees.
- The source of funds deposited into NRO accounts can be from India or abroad. You can also deposit money from your earnings abroad or transfer money from a NRE account into a NRO account.
- Funds which can be repatriated from the NRO are subject to a maximum limit of USD 1 million per financial year.
- Interest income earned on the money in a NRO account is liable for taxes in India
So, in conclusion, NRE account is chosen when you want to park your overseas earnings remitted to India converted to Indian Rupees. And NRO account is choosen when want to park India based earnings in Rupees in India, or you want account to deposit income earned in India such as rent, dividends etc. Both the accounts are maintained in Indian rupees. But if you want to maintain your account in foreign currency you need another type pf account ie. FCNR account.
3rd type: FCNR account (Foreign currency non resident account):
- It allows NRIs to make fixed Deposits (FD) in Indian Banks, in Pound Sterling, US Dollar, Japanese Yen, Euro etc. They are not savings bank accounts. Only Fixed deposit is possible
- minimum maturity is 1 yr and maximum is 5 yrs.
- FCNR accounts have to be opened and maintained in the foreign currency itself. Also, the source of funds deposited into FCNR accounts have to be from sources abroad.
- Interest income earned on the money in a FCNR account is non-taxable in India. NRE and FCNR accounts have the advantages of not having to pay taxes in India
People opening NRE accounts and would like to repatriate their funds at some point must consider the foreign currency conversion rates at the time the funds are being deposited versus the time when the funds have to be repatriated. This can carry risks as well as rewards depending on the forex rates trend. For example, if $1000 is converted to Indian rupees at Rs. 50 per dollar(=50000RS) and then converted back to dollars at a conversion rate of Rs. 40 per dollar(50000/40=1250$), then you would get back $250 for a good gain. On the other hand, if the dollar is at Rs. 55 per dollar(50000/55=909), you would lose some of your principal when you do the repatriation
Note: foreign tourists can also open NRO accounts for maximum validity of 6 months.
Mystery Girl (@DISQUS)
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