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NRI: (Non- resident Indian) definition: As per FEMA 1999
A person resident outside India who is a citizen of India i.e.
a) Indian Citizen who proceed abroad for employment or for carrying on any business or vocation or for any other purpose in cirucumstances indicating indefinite period of stay outside India.
b) Indian Citizens working abroad on assignment with Foreign government, government agencies or International MNC
c) Officials of Central and State Governments and Public Sector Undertaking deputed abroad on assignments with Foreign Govt Agencies/ organization or posted to their own offices including Indian Diplomatic Missions abroad.
NRI is a Person of Indian Nationality or Origin, who resides abroad for business or vocation or employment, or intention of employment or vocation, and the period of stay abroad is indefinite. And a person is of Indian origin if he has held an Indian passport, or he/she or any of his/hers parents or grandparents was a citizen of India.
A spouse , who is a foreign citizen, of an India citizen or PIO, is also treated at a PIO, for the purpose of opening of Bank Account, and other facilities granted for investments into India, provided such accounts or investments are in the joint names of spouse.
NRE Accounts – Rupee and Foreign Currency Accounts
NRI has provided with various schemes to open Bank A/cs an invest in India.
1) Non Resident (External) Rupee Account (NRE);
2) Non- Resident (Ordinary) Rupee Account (NRO);
3)Foreign Currency (Non-Resident) Account (Banks) {FCNR(B)}
When resident becomes NRI, his/her domestic rupee account, has to be re-designated as an NRO account.
For NRE – Rupee A/cs , w.e.f 15-3-2005 an attorney can withdraw for local payments or remittance to the account holder himself through normal banking channels.
NRI wants to repatriate overseas earned money back to India and/or NRI wants to keep India based earnings in India. NRI has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account. An NRO account can also be opened by a Person of Indian Origin (PIO) and an Overseas citizen of India (OCI).
Similarities between NRE and NRO accounts:
Both accounts can be opened as Savings as well as current accounts and are Indian Rupee accounts. One needs to maintain an average monthly balance of Rs 75000 in both NRE and NRO accounts.
The Differences between NRE and NRO accounts:
Repatriation: Repatriation is defined as sending or bringing money back to the foreign country. You can easily repatriate funds from an NRE account including the interest earned in that account. However, RBI has made some restrictions on NRO accounts. You can remit only up to USD 1 million in a financial year (April to March). In addition, you will need a chartered accountant to complete the paperwork for you.
Taxation Laws: NRE accounts are tax exempted. Therefore, income taxes, wealth taxes, and gift taxes do not apply in India. Interest earned from these accounts is also exempt from taxes. But as per Indian Income tax laws, NRO accounts are taxable; income taxes, wealth taxes, and gift taxes do apply. Interest earned on an NRO account as also subject to taxation. However, reduced tax benefit is availed under Double Taxation Avoidance Agreement (DTAA).
Deposit and Withdrawal of Funds: You can deposit funds from a foreign country (in foreign currency) in both NRE and NRO accounts, but funds originating from India (in Indian rupees) can only be deposited in an NRO account and cannot be deposited in an NRE account. Withdrawals from both NRE and NRO accounts can only be made in INR.
Flow of Funds: In an NRE account, repatriation is allowed outside India in any currency.
Transfer: An NRE account allows you to transfer funds to another NRE account as well as to an NRO account. You can transfer funds from an NRO to another NRO account, but you cannot transfer funds from an NRO account to an NRE account.
Joint Accounts: Two NRIs can open both an NRE joint account or an NRO joint account. However, you cannot open an NRE joint account with a resident Indian. This facility is available only with an NRO joint account.
Motive or Purpose: An NRE account helps you transfer funds to India earned abroad and maintain them. While NRO accounts helps maintain regular flow of income earned in the form of rent, pensions, or dividends from India.
Effect of Exchange Rate Fluctuations: NRE accounts are exposed to two kinds of exchange loss, namely day-to-day fluctuations in the value of INR and conversion loss. NRO accounts are not at such risk.
Choose NRE accounts if you:
want to park your overseas earnings remitted to India converted to Indian Rupees;
want to maintain savings in Rupee but keep them liquid; want to make a joint account with another NRI;
want Rupee savings to be freely repatriable
Choose NRO account if you:
want to park India based earnings in Rupees in India;
want account to deposit income earned in India such as rent, dividends etc;
want to open account with resident Indian (close relative)
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