My son went to the US last month for a job and has thus become a non-resident under FEMA. Will he have to open an NRE account? How is NRO account different from NRE account?
Answer: Once an Indian resident becomes a non-resident under the provisions of FEMA, he has to inform his bank about the change in his residential status. Thereafter banks re-designate all existing bank accounts as NRO accounts. Generally, there is no restriction regarding the amount of money that can be deposited in your NRO account. You can also open a new NRO account after becoming a non-resident under FEMA. Up to USD 1 million can be remitted every financial year from your NRO account, after paying applicable taxes in India.
An NRE account is an account that can be opened by an individual after becoming a non-resident under FEMA. NRE account can be maintained in Indian currency or in any permitted foreign currency. There are restrictions regarding the amount of money that can be deposited in an NRE account. Normally, money remitted through banking channel from outside India can be deposited only in NRE account. Money in NRE account is fully repatriable outside India. An NRE account is virtually a bank account maintained outside India, though actually maintained with Indian banks.
As far as taxation is concerned, interest earned on NRE account is fully exempt under section 10. However, interest deposited on NRO account is fully taxable in India and banks are required to deduct tax at source on all interest deposited on NRO bank. Account including savings bank account.
Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.
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