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Key Takeaways: Have you wondered which NRI account allows you to hold funds tax-free? Which one do you use to collect income earned in India? Liiving life overseas is challenging enough. Worrying about the right kind of NRI account should be the last thing on your mind. Here is a quick look at the differences between different types of NRI accounts.
The Foreign Exchange Management Act (FEMA) mandates that a Non-Resident Indian (NRI) must maintain an NRI account if they wish to carry out financial transactions in India. They can use an NRI account to transfer money earned abroad to India and maintain savings here. They can also use an NRI account to manage income earned in India or repatriate income earned in India. NRIs can choose from three major types of accounts.
Types of NRI Accounts
As an NRI in India, you can open an NRE (Non-Resident External) Account, NRO (Non-Resident Ordinary) Account and FCNR (Foreign Currency Non-Resident) Deposit Account.
Let us understand the three types of NRI accounts in detail, along with their benefits.
1. NRE (Non-Resident External Account)
NRE is one of the many types of NRI bank accounts. NRIs use it to transfer foreign earnings to India. With this account, you can deposit money in a foreign currency and freely repatriate back to your country of residence. Once the money is deposited in foreign currency, it is converted into INR. You can subsequently maintain and withdraw funds in INR. An NRE account is available in the form of savings or fixed deposits.
Some of the key benefits of having an NRE account are:
2. NRO (Non-Resident Ordinary Account)
An NRO account is also an Indian rupee-denominated account and is available as a savings account and a fixed deposit. However, while an NRE account is used to keep money earned overseas, an NRO account is for managing the income you earn in India. This income can be through sources like rent (from a property you own in India), dividends, salaries, etc. You can repatriate up to USD 1 million in any financial year through an NRO account. You do need to note that this account's interest is taxable in India according to the Income Tax Act of India.
Some of the key benefits of having an NRO account are -
3. FCNR (Foreign Currency Non-Resident Account)
FCNR is a fixed deposit account opened by an NRI to transfer their foreign income in the same currency. Fundamentally, it differs from NRE and NRO in terms of the underlying currency denomination. NRIs can deposit funds in 7 currencies - US Dollars, UK Pound, Singapore Dollar, Hong Kong Dollar, Canadian Dollar, Australian Dollar and Swiss Franc. There are no restrictions on repatriation from an FCNR account. It is an investment option for NRIs looking to retain their income in foreign currency for better returns.
Some of the key benefits of having an FCNR account are –
Final Note: Some NRIs often face difficulties with bifurcated earnings across India and abroad. It is challenging to manage finances spread across multiple accounts and keep track. NRI accounts help mitigate such challenges while also complying with the Indian laws. However, NRIs need to understand the various types of NRI accounts and their benefits to choose the best alternative.
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