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. Here is detailed information about NRE accounts and NRI vs. NRE comparison.
In India, there is no definite law that particularly states the visa status of a Non-Resident Indian. But in general, people give this status to anyone who lives outside of India. Instead of having a definite classification, the NRI status is given to people who are not a Resident of India.
So, under Income Tax Act 1961, Section 6, an Indian citizen is deemed to be a Resident of India if they have stayed in India for a minimum period of 182 days during the previous fiscal year or resided for 60 days in the current year and minimum of 365 days in the previous four years. Anyone who does not fit at least two conditions from the criteria stated above is given the status of NRI for the previous fiscal year.
In short, if an Indian citizen resides abroad for a total of 183 days in a fiscal year, they are considered to be Non-Resident Indians. This article will help in clarifying the idea of NRI vs. NRE.
To open an NRI account in India, the person should not fit the criteria of an Indian Citizen or, as per 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 become NRI is if one leaves the country for employment. Then immediately, they gain the NRI status.
There are three types of NRI accounts, and they all have different characteristics, which make it easy to compare NRI vs. NRE. So to open them, one should have a clear understanding of them. One can deposit the money they earn from their current residing country or the amount they earn from India. The options depend on the type of NRI account.
The three NRI accounts are NRE, NRO, and FCNR. More description of them and comparison of NRI vs. NRE are given below:
NRE stands for Non-Residential External. The account accepts deposits of earnings that originate from the NRI's current country of residence. But with just one clause, and that is that the earnings should be denominated in Indian Rupees.
For example, X works in a European country and has to support their parents back in India. The deposit, says 3000 Euro, every month denominated in Indian Rupee. Based on the exchange rate, the Euro will be converted into Indian Rupees. So, if 1EUR= 90 INR, then on conversion, the account holds Rs. 2,70,000 (3000x90).
A Non-Resident Ordinary Account accepts income originated in India and is held in Indian currency. The source of income can be a dividend, rent, pension, return of equity, etc.
For example, Y is an NRI and holds investments in Indian financial instruments. Then the timely dividends and profits can be deposited in their NRO account. Since the deposits are denominated in Indian Rupees, there is no need for currency conversion.
Foreign Currency Non-Residential Account allows NRIs to deposit foreign currency and is denominated in the currencies listed by RBI. The prescribed currency denominations are 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).
So, if one earns in one of these currencies, there will be no conversion, but it will be converted to one of the prescribed RBI currencies if earned in any other currency.
Apart from the convenience of depositing money, NRI and NRE accounts have many other benefits.
One of the best things about these NRI accounts is that they allow a free flow of funds. Both NRO and NRE accounts allow the movement of money. One can repatriate the entire fund abroad, both the interest and principal. NRE accounts allow full repatriation whereas, the funds in NRO accounts are first tax deducted then, the remaining can be repatriated.
The FCNR accounts allow one to deposit and hold the funds in foreign currency. This way, they can even earn interest in foreign currency denominations. This fund is not taxable in India.
Having proper knowledge and understanding of tax benefits helps make a decision about which account is suitable for the funds. The deposits in the NRE accounts are not taxable in India. On the other hand, Tax regulations are applicable on funds deposited in NRO accounts. One can also transfer funds from the NRO account to an NRE account after they are deducted for tax.
Opening NRI accounts is a very simple and easy process. One can do it even without visiting the bank's Indian branch. Fill the online form and take a printout of it. Next, attach all the required documents and make sure they are self-attested. Bunch them together and courier them to the bank in India.
The minimum deposit balance in the account has been dropped significantly. Most banks that provide NRI accounts require 10,000 INR to be kept as a minimum balance.
All three accounts have their features and differ from each other in some way. The differences of NRI vs. NRE, NRE, and NRO are:
The following people can be eligible to open NRI and NRE accounts:
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. This part of the whole process is essential because the rest is easy. 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.
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