Friday, March 25, 2016

Tax Benefits of NRE Accounts (Saving, Current, Recurring or Fixed Deposit)

NRIs (Non Resident Indian) are allowed to open bank accounts in India, and by knowing features and the tax benefit of different types of NRI accounts, you can save a good amount of money. There are three types of accounts an NRI can open in India, NRE (Non Resident External), NRO (Non Resident Ordinary) and FCNR (Foreign Currency Non Resident) account. Out of these three, first two are maintained in Indian rupees and only FCNR account is maintained in the foreign currency of choice e.g. USD, GPB, EURO, SGD, HKD or JPY.


The different bank gives the option to open FCNR fixed deposit in different currencies. Unlike FCNR, which can only be open as fixed deposit, you can open NRE or NRO accounts in the form savings, current, recurring or fixed deposit accounts.
Key point to remember is that NRE accounts have better tax benefits than NRO, which is like your resident saving account with higher TDS rates. NRE accounts including saving and fixed deposits all avail the same kind of tax benefits as discussed below.



Tax Benefits of NRI Accounts in India

1) Interest earned on the money parked in NRE saving, current, recurring or fixed deposit are completely tax-free in India. Which means the interest yield will be significantly better for NRE fixed deposit than NRO fixed deposit which is subject to TDS.

2) Balances held in NRE accounts are also exempted from wealth tax in India. Remember, you need to pay wealth tax in India if your wealth is more than 3 Million INR, which is also 1% of total wealth.


3) You don't need to pay any tax if you transfer money from your NRE account to abroad, also known as free repatriation, but subject to terms and conditions of the resident country.

Tax benefit of NRE, NRO and FCNR Accounts


As I said before, it's not mandatory for NRIs to file income tax returns but they do need to file income tax returns in case of scenarios mentioned in my earlier article, when does NRI need to file ITR in India. If you a good knowledge of features and benefits offered by different NRI accounts, you can minimize your tax liability in India.

Becuase of this tax benefits offered by NRE accounts, they are the most sought after NRI investments in recent years. The improved position of the dollar and the weak rupee has also encouraged many NRIs to open NRE fixed deposit in India this year, the current exchange rate of USD to INR is around 66-68 rupees for 1 US dollar, which is very impressive compared to 44 to 45 rupees 5 years back.


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