Have you lived outside India for more than 182 days in the financial year (Apr-March)? If yes, then for tax purposes, you are an NRI (Non-Resident Indian). As per FEMA (Foreign Exchange Management Act) guidelines, it is illegal for NRIs to hold savings accounts in their name in India.
Instead, you will have to convert those accounts into NRO (Non-Resident Ordinary Rupee) accounts. Additionally, it is a good idea to open an NRE (Non-Resident Rupee) account as well. These accounts are needed only when an NRI wants to have a bank account in his/her own name in India to hold savings, earn/invest in India and wants to freely transfer funds between US and India. (If you don’t have any Indian bank accounts, you can still send money to someone in India via money transfer services, wire transfers or Telegraphs, or buy something in India with International Credit Cards).
What is the NRO account?
The NRO account is a savings or current account held in India for NRIs to manage their income earned in India. All income which is receivable in India such as rentals from property, investments, pension etc have to be deposited in this account. Any payment towards insurance premiums or EMIs on loans which you availed while in India also has to be mandated from NRO account.
You can apply for an NRO account jointly with a resident Indian in which the bank will give you both an NRO debit card each. Alternately, you can add a mandate holder for the account who can carry out certain operations of the account on behalf of the NRI like drawing cheques to make local payments, make and renew fixed deposits, and invest in avenues open for NRIs. Any foreign currency deposited into the NRO account will convert to Indian rupees.
Even though funds from NRO account are now repatriable up to $1million (with a certificate from a Chartered Accountant for payment of taxes and other repatriation fees), it is advised to keep these India based earnings in India, in the NRO account. Note that interest earned in the NRO Account is subject to TDS (Tax Deductible At Source) at 30.9%.
And what about an NRE account?
The NRE account comes to the rescue, for NRIs wanting to transfer funds between US and India. One can deposit only foreign currency earned abroad in this account, which gets converted into INR at the time of deposit. Therefore, you may repatriate the money in this account (plus interest earned) any time without incurring income/wealth/gift tax. The benefit of repatriation and taxation is the main benefit of the NRE account. Some Indians move their US savings to the NRO accounts, invest in India in high yield instruments, and re-transfer and use that money in the US. Transferring funds between and NRE and NRO account is straightforward and simple. Additionally, with the NRE account, you will receive an international debit card that enables you to transact and withdraw money at any time (withdrawal in INR).
However, a joint NRE account can be opened only with another NRI. You cannot use your NRE account for receiving funds/income/interest in India. To make local bill payments, purchase property, etc. in India you will have to move funds from your NRE to NRO account first. This is how the government regulates the inflow of foreign money to India.
Please contact your Indian Bank now for details on opening and managing your NRE and NRO accounts.
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