Table of Contents
What is the Non-Resident Accounts?
Taxation of NRE NRO FCNR
- NRIs can send their foreign incomes or earnings to India any time without any hassle.
- NRIs can also retain their incomes or earnings earned in India in the home country in a hassle free manner.
What is a Non-Resident External Account?
A Non-Resident External Account refers to an Indian Rupee-Denominated Account that offers complete security of the funds. It is to be noted that NRE accounts can be in the forms of recurring, current, savings or fixed deposits. In these accounts, foreign currency deposited can be converted into Indian currency. Also, NRIs can send or transfer funds such as interest as well as principal amount from an Non-resident external account to a foreign account without any hassle and complications. Also, the account holder must note that the amount he or she is depositing in the Non-resident external account should be earned from foreign countries.
- NRIs can use the international debit card of such an Non-resident external account which enables them to transact and withdraw money 24X7.
- Mutual Funds investment can become instant and effortless by linking the NRE account number to the investment account
- Non-resident external account also helps to use making investments, personal banking or carrying out business in India.
What is a Non-Resident Ordinary Rupee Account?
What is Foreign Currency Non Resident Account?
FCNR Fixed Deposits are termed as one of the best investment options for Non-Resident Indians who are looking forward to retaining their savings in foreign currency with a view to earn good return on the earnings of foreign currency. It is to be noted that these fixed deposit accounts and not savings accounts. As mentioned earlier, the currencies of the 7 countries can be placed in this account including the United Kingdom, United States of America, Canada, Australia, Hong Kong, Singapore and Japan.
The maximum and minimum tenure of opening a FCNR are 5 years and 1 year respectively. Its rates of interest term deposits are basically payable after the end of the first year. The interest earned from this account is compounded on a half yearly basis after the completion of first year.
The difference between NRE & NRO Accounts
- An NRE account is a savings or current or fixed deposits bank account opened by an NRI on his or her name in India in order to deposit his or her income generated or earned outside India. On the other hand, an NRO account is also a bank account opened by an NRI in his or her name in order to manage the incomes earned by him or her in India. The aforesaid incomes may include dividend, pension, rent, interest etc.
- Non-resident external accounts are tax -free accounts. It is to be noted that balance or interest earned on these accounts are taxable. However, in case of NRO accounts, the interest earned is taxable at the rate of 30% under the provisions of the Income Tax Act, 1961.
- The principal amount and interest accumulated in an Non-resident external account is open for repatriation. In simple words, an Non-resident external account holder can transfer the aforesaid amounts to a foreign account. However, in the case of an NRO account, the interest amount can be repatriated and the principal amount can only be remitted up to USD 1 million USD in a financial year.
- An NRO account can be opened by one or more NRIs or Indian Residents as joint account holders. However, in the case of an Non-resident external account, a joint account can only be opened by one or more NRIs.
- An NRI can open a joint NRO account with one or more NRIs or Indian citizens. However, there can be a joint NRE account only with another NRI.
- In any of these accounts, income earned outside India can be deposited. However, income generated or earned in India can only be deposited into the NRO account. Also, the money from both of these accounts can only be made in Indian currency.
- In the case of an NRO account, if the deposits and withdrawals are done in Indian currency, then there is no risk of exchange rate. But in case of Non-resident external account there will be fluctuations in the currency which can lead to risk in exchange rate.
Taxation of Non-Resident External Account
The interest income from Non-Resident External Account, earned by any individual is tax free in India. In simple words, any interest earned from an Non-resident external account is exempt from tax as per the provisions of income tax laws of India. However, the individual must qualify as a “Person Resident Outside India” or NRI under the exchange control law Or the Reserve Bank of India (RBI) has permitted the individual to maintain a NRE account in India. It is to be noted that the rules and guidelines of determining the residential status under the Foreign Exchange Management Act are different from Income Tax Act laws in India.
Taxation of Non-Resident Odinary Account?
- Capital Gain earned on Investment in India
- Any salary or consulting fees earned in India
- Any income received from house property located in India
- Interest income earned from the NRO deposits accounts
- Self declaration format by the Chartered Accountant to deduct TDS in India
- Tax Residence Certificate issued by the relevant authority of the residence country
Taxation of FCNR Account
It is also to be noted that the interest earned from the FCNR account may vary from currency to currency. Also, it depends on the bank’s regulations as different banks offer different rates of interest. This can be better analyzed with the help of an example. For example, the interest rate of an FCNR account for 1 year in US currency will be different from Australian currency for the same amount of deposits. Generally, the rate of interest on FCNR deposits accounts are decided by the Board of Directors of that particular bank considering and under the mandatory regulations of the Reserve Bank of India (RBI).