There are many Indians who live abroad and have continuous monetary transactions in India. They can be interested in any kind of investment or sending money to the family living back in India. Irrespective of the purpose of the transaction, it becomes easier when one has an NRI account with a bank in India.
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In India, there isn't a specific law that explicitly defines the visa status of a Non-Resident Indian (NRI). Generally, this status is attributed to individuals living outside of India. Rather than a distinct classification, NRI status is granted to those who are not residents of India.
According to Section 6 of the Income Tax Act 1961, an Indian citizen is considered a resident if they have spent a minimum of 182 days in India during the previous fiscal year, or 60 days in the current year and a total of 365 days in the previous four years. If an individual doesn't meet at least two of these conditions, they are classified as an NRI for the previous fiscal year.
In essence, if an Indian citizen resides abroad for a total of 183 days in a fiscal year, they are deemed Non-Resident Indians.
To open an NRI account in India, a person must not meet the criteria of an Indian Citizen or, as per the Income Tax Act 1961, should be outside of the country for at least 120 days in a particular year, and also reside in India for less than 365 days for the past 4 years combined. Another way to attain NRI status is by leaving the country for employment. In such cases, NRI status is acquired immediately.
There are three types of NRI accounts, each with distinct characteristics, making it easy to compare NRI vs. NRE. Therefore, a clear understanding of them is essential before opening the account. One can deposit the money earned from their current residing country or the amount earned from India, depending on the type of NRI account.
Non-Resident Indian accounts are specialized bank accounts designed for individuals who are Indian citizens living abroad. These accounts are governed by the Reserve Bank of India and serve as a way for NRIs to manage their finances in India. There are primarily three types of NRI accounts:
NRE stands for Non-Residential External. This account accepts deposits of earnings originating from the NRI's current country of residence, provided that the earnings are denominated in Indian Rupees.
For instance, if X works in a European country and sends 3000 Euros every month in Indian Rupees (assuming 1EUR=90 INR), the account will hold Rs. 2,70,000 (3000x90).
Allows foreign currency transfer, with the balance held in Indian Rupees.
Deposited amount is tax-free and repatriable.
Eligible to earn up to 4.35 percent interest per annum on NRE deposits.
A Non-Resident Ordinary Account accepts income originating in India and is held in Indian currency. This includes dividends, rent, pension, return of equity, and more.
For example, if Y, an NRI, earns from Indian financial instruments, the dividends and profits can be directly deposited in their NRO account, as there's no need for currency conversion.
Withdrawals possible only in Indian Currency.
NRO account handles all earnings from Indian sources.
Repatriation limit for every financial year is 1 million USD.
Foreign currency deposited is converted into INR based on the prevailing conversion rate.
One can earn up to 5.5 percent interest per annum on NRO deposits.
Foreign Currency Non-Residential Account allows NRIs to deposit foreign currency in the denominations listed by RBI. These include CAD (Canadian dollar), USD (US dollar), EUR (Euro), AUD (Australian Dollar), HKD (Hong Kong Dollar), GBP (Great Britain Pound), SGD (Singapore Dollar), CHF (Swiss Franc), and JPY (Japanese Yen).
If one earns in any of these listed currencies, there is no need for conversion. Otherwise, it will be converted into one of the prescribed RBI currencies.
Deposited amount and interest earned are repatriable.
One can hold the currency in various denominations.
Deposits have a tenure range of 1-5 years.
Deposits automatically renew upon maturity.
The deposits are non-taxable in India.
Apart from the convenience of depositing money, NRI and NRE accounts offer several other benefits. Below are some of the benefits:
Minimum Balance: The minimum deposit balance required for these accounts has been significantly reduced. Most banks offering NRI accounts now require a minimum balance of 10,000 INR.
Repatriation: One of the key advantages of these NRI accounts is their ability to facilitate a free flow of funds. Both NRO and NRE accounts allow for the movement of money, enabling one to repatriate the entire fund abroad, including both the interest and principal. While NRE accounts allow full repatriation, funds in NRO accounts are subject to tax deduction before repatriation.
FCNR Deposit: FCNR accounts enable individuals to deposit and hold funds in foreign currency, allowing them to earn interest in foreign currency denominations. These funds are not taxable in India.
Tax Benefits: Having a thorough understanding of tax benefits aids in choosing the most suitable account for one's funds. Deposits in NRE accounts are not subject to taxation in India. Conversely, tax regulations apply to funds deposited in NRO accounts. It is also possible to transfer funds from an NRO account to an NRE account after they have been deducted for tax.
Convenience: Opening NRI accounts is a straightforward process. It can be done without the need to visit the bank's Indian branch. Simply fill out the online form, print it, attach the required self-attested documents, and courier them to the bank in India.
All three accounts have their features and differ from each other in some way. The differences of NRI vs. NRE, NRE, and NRO are:
Purpose: The NRE account is for depositing earnings from the NRI’s current residing country, while NRO accounts manage earnings from Indian income sources.
Joint account: In NRE accounts, both account holders need to be NRIs to open a joint account. In NRO accounts, an NRI can open a joint account with an Indian resident or another NRI.
Tax benefits: In NRE accounts, both principal and interest are tax-exempt. In NRO accounts, both principal and interest are Income Tax deductible.
Repatriation: NRE accounts allow repatriation of the entire fund, while in NRO accounts, interests can be fully repatriated, but the principal can be withdrawn up to the limit of 1 million USD in a fiscal year.
Conversion rate: NRE account balance is affected by the current conversion rate, whereas NRO balances are not.
Deposit denomination: Deposits in NRE accounts are denominated in INR. In FCNR accounts, deposits are denominated in RBI prescribed currencies (SGD, EUR, AUD, HKD, JPY, CHF, GBP, USD, and CAD).
Tax benefits: NRE exempts the entire fund from any Income Tax. In FCNR accounts, only the interest is tax exempted.
Purpose: NRE accounts take deposits in INR from the country where the NRI is currently residing. FCNR accounts allow deposits from the NRIs residing in the country, but they must be denominated in one of the nine currencies prescribed by RBI.
Type of accounts: Under NRI and NRE accounts, one can open fixed deposits, savings, and current accounts. In an FCNR account, one can only open a fixed deposit account with a maturity period range of 1-5 years.
Currency denomination: NRO maintains the balance in INR, whereas the FCNR account holds the fund in the prescribed nine currencies.
Tax benefits: NRO accounts deduct tax from both the interest and principal. FCNR accounts only deduct tax from the interest earned.
Purpose: NRO accounts are opened to maintain the timely collection of earnings from Indian income sources. In contrast, FCNR is used to deposit earnings from the country where the NRI is residing.
Repatriation: In NRO accounts, the principal can be withdrawn up to 1 million USD in a year, and full interest is allowed. FCNR allows full balance repatriation.
Joint account: A joint account can be opened with both an NRI and Indian resident in the case of an NRO account. With FCNR accounts, it can be jointly opened only with another NRI.
The following individuals can be eligible to open NRI and NRE accounts:
Students pursuing education and degrees abroad.
Individuals employed in foreign oil rigs, the Indian Navy, overseas shipping firms, or NRI-registered airlines. These occupations should necessitate a residence outside of India for at least 182 days.
Those who own businesses, practice a trade, or work abroad.
Government employees holding diplomatic passports.
Visa permit, student visa, employment visa, residence visa, or work permit.
Photocopy of the information page of the passport.
Bank application form
KYC document (optional)
A Non-Resident Indian can have multiple reasons to open an NRI account as NRO accounts for NRI and NRE. Before choosing between the three types of accounts available, have a complete understanding of the characteristics, pros, and cons. Banks have made sure that opening an NRI account is easy and hassle-free. The accounts are a great way to manage the funds in India when one resides in a different country.
Past 10 Year annualised returns as on 01-11-2023
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*All savings are provided by the insurer as per the IRDAI approved insurance plan.
Tax benefit is subject to changes in tax laws. Standard T&C Apply
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