Every year a large number of youngsters move overseas for education or employment. Whether you are employed abroad or have a business, you can send money to your loved ones or invest in India through fixed deposit or term deposits. The multinational banks that have branches in India provide NRE account and NRO account facility to repatriate overseas earned income in India and to keep revenues generated in India respectively. Having an NRE account is mandatory if you want to send your overseas earned income back to India. Therefore, you can opt to open your NRE account with SC. Let’s know more about NRE accounts.
Factors to know before opting for an NRE account
According to Indian tax laws, a person who spends less than 182 days in Indian in a financial year is recognized as a Non-residential Indian. It is difficult for an NRI to maintain different accounts in his homeland and in the country he is currently living in. Thus, an NRE account comes to the rescue because one can easily manage their overseas earned income with an NRE account. Here are the essential things to know regarding the NRE account –
As an NRI, you can transfer funds back to India using an NRE account. It helps you to use your overseas earned income conveniently and the feasibility to repatriate them. Having an NRE account can be beneficial when you need to send money to parents who live in India, for medical emergencies, to pay for your children’s education, and for gifting your loved ones.
Opening an NRE account is easy because you don’t have to visit a branch in person. The whole documentation process is done online. You are just required to fill up the application form online and submit the required documents to avail of an NRE account.
The inner and outer cash flow between Indian and overseas is known as repairability. One of the significant benefits of using an NRE account is that you can smoothly repatriate both the principal amount and earned interest. Unlike an NRO account, funds in an NRE account are freely repatriable.
As it is rupee dominated account, so you can transfer funds to any other country without any risk. Even, you don’t need to maintain a high balance in your NRE account all the time. Some banks require a minimum balance of RS 10,000 in an NRE account.
Under an NRI account, the income and the interest earned by an NRI are entirely tax-free, which means no wealth tax, gift tax or income tax. Both the principal savings amount and interest is tax-free, so you can think of investing in the stock market, mutual funds, fixed deposits, and many other investment options. Besides, the NRE fixed deposit is also tax-free in India.
Through NRE accounts, you can also have an option to make NRE fixed deposits in foreign currencies. These FCNR deposits are very beneficial because you can earn interest in foreign currencies. In case you want to save your money in foreign currency and earn interest in foreign currency then you can opt for this deposit. Both the deposited amount and the earned interest is tax-free.
Difference between NRE and NRO account
An NRI can keep his revenues generated from India in an NRO account. While the NRI can park his overseas earned income using an NRE account. An NRO account allows you to maintain your accumulated rupee funds, so it is available as savings and current accounts. On the other hand, the NRE account is available in the form of current, savings, and fixed deposits, etc.
Both in NRE and NRO accounts the cash withdrawal is made in Indian currency. But in an NRE account, the money is deposited in foreign currency. However, the NRE account is tax-free in Indian, but the NRO account is partially taxable.
The procedure of opening an NRE account
The most significant benefit of an NRE account is that you can create the account online without any hassle. First, you need to fill up an application form online. After that, you may receive a tracking id that you need to memorize. Because the tracking id helps to track the entire account application status.
Then, print the required documents and sign in the appropriate places and send them to the mentioned address. Some banks have multiple collections boxed where you can send the documents, but some banks provide a specific address for posting the documents. Hence, you should read the bank instructions carefully.
Being an NRI, if you want to transfer your overseas earned income back to India and wish to avoid tax liabilities at the same time then the NRE account is the best option available for you. In case, you don’t need to send money to anyone in India then you also make an FCNR deposit and make your money grow. An NRE account can provide you with several benefits, but you should choose to make financial decisions considering your NRI status category.