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NRE/ NRO Accounts
The
government gives non-resident Indians (NRI) the opportunity to open
rupeedominated accounts in India for repatriating funds. The most popular among
these are the NRE and NRO accounts.
Simply put, an NRE (non-resident external) accounts gives an individual the
opportunity to deposit money earned from abroad. It can be either in the form of
a savings or current or term deposit account. Apart from the account holder, a
resident can also operate the NRE account for making local payments as long as
he has the power of attorney.
How do
you open an NRE or NRO account?
The process is
similar for both accounts. To open an NRO or NRE account, one has to make a
request with an authorised bank. One is then is required to submit documents
like utility bill, driving licence, resident permit, rent received, passport and
overseas or Indian bank statement. Also, the minimum fund has to be remitted to
India either as forex remittance and transfer from existing NRE account.
What’s
the difference between NRE and NRO account?
While, an NRE
account is for depositing income from abroad, NRO account is mainly for putting
Indian incomes. In the former, only NRIs can become joint account holders but in
the latter both resident and nonresident can become joint account holders. Funds
from NRE account can be transferred to NRO account but the reverse is not
possible. One can freely repatriate the principal amount from the NRE account
but not from the NRO account. The principal amount lying in the NRO account can
be used only for local payments. However, the interest earned on the principal
is repatriable in both the cases. In a year, funds up to $1 million can be
repatriated from NRO account. The interest earned on NRO account is taxable in
India but it is tax free in case of NRE accounts.
What
are the advantages and disadvantages of NRE account?
Interest on
deposits in an NRE accounts is tax free in India. The balance lying on the
account does not attract wealth tax. Any gifts given from the money lying in
this account does not attract gift tax.
The primary disadvantage associated with an NRE account is that it suffers from
currency risk and attracts lower rate of interest in comparison to NRO account.
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