As NRI, you can open following different type of Bank accounts in India based on your requirements:
- NRO – Non-Resident Ordinary Account
- NRE – Non Resident External Account
- FCNR (Foreign Currency Non Resident)
NRE Account vs NRO Account vs FCNR Account – Key Features
|Type of Account||Savings, Current, FD||Savings, Current, FD||FD|
|Held in Currency||INR||INR||USD, GBP, EUR, AUD, CAD|
|Source of Funds||Remittance from Overseas or Transfer from existing NRE/ FCNR Accounts||Local Income in India (Rent, interest or dividend income).
Transfer from existing NRE
|Remittance from Overseas or Transfer from existing NRE/ FCNR Accounts|
|Deposit of Rupee funds generated in India||No||Yes||No|
|Repatriation||Fully repatriable – both principal and Interest||Restricted repatriability Recently RBI has allowed to transfer funds from NRO to NRE account upto maximum of $1 million in a financial year
|Fully repatriable – both principal and Interest|
|Income tax||Interest earned in NRE accounts is fully exempt from tax in India
|Taxable in India. Tax will be deducted at source. Can file return & claim refund
||Interest earned is fully exempt from tax in India|
|Joint accounts held with||NRI||NRI / Resident||NRI|
|Key feature||Rupee Account with repatriation benefits||Account for depositing local funds||Foreign currency deposits with full repatriation benefits and no exchange risk|
Taxation for NRE , NRO . FCNR Account
Interest on the NRE account and FCNR account are tax free in India. However, countries like the US, which levy tax on global income of its residents and citizens will tax this income. So while interest on NRE and FCNR accounts are tax free in India, a US resident or citizen would have to add this interest to his total income in the US tax return and pay taxes thereon.
For NRIs in tax free zones like the Gulf region, the NRE and FCNR option would work best. For residents of the US, the choice would depend on the tax slab applicable in the US.
Interest on the NRO account is taxable and for NRIs, tax is deducted at source at 30%.
In case of a Double Taxation Avoidance Agreement (DTAA) between India and other countries, this TDS rate would be lower. For instance, the DTAA between India and the US lays down a TDS rate of 15% on interest from deposits in India.
These deposits may also be taxed in the country of your residence. The US, for instance, taxes global income of its residents and citizens. However, if tax has been deducted at source in India, the investor will get a credit in the US for taxes paid in India.
You can always file returns in India and claim refund if your Income is below taxable limit in India.
NRE Account – Suitable for NRI who wants to transfer foreign earnings into INR and enjoy full repatriability & tax free interest income.
NRO Account – Suitable for NRI who has Income in India (Rent, Pension etc)
FCNR Account – suitable for NRI who wants to keep their money in foreign currency.
You can open multiple accounts to suit your needs.