Choosing NRI deposit scheme: Consider income source, remittance needs

 Choosing NRI deposit scheme: Consider income source, remittance needs

The Reserve Bank of India (RBI) data reveals that overseas Indians deposited $4 billion in non-resident Indian (NRI) deposits schemes between April and June of 2024-25, a 79 per cent increase over the previous year. These schemes include non-resident ordinary (NRO) deposits, non-resident external (NRE) deposits, and foreign currency non-resident (FCNR) deposits.

Despite rising inflows, many NRIs lack awareness about NRO and NRE accounts and mistakenly use family accounts or invest in a relative’s name. Many are unaware of the tax implications.

NRO Account

An NRO account is used to deposit earnings from Indian sources, such as dividend, stock returns, pension, and rental. Interest from NRO accounts is fully taxable in India at applicable rates, including surcharges and cess. Taxes paid in India can be credited under the tax treaty with the individual’s country of residence.

RBI regulations limit repatriation from NRO accounts.

NRE Accounts

NRE accounts allow NRIs to manage foreign income with seamless transfers to India. The interest income is tax-exempt in India.  

This makes it an attractive option for NRIs to park money tax-free in India. Funds, including interest, can be freely repatriated to the NRIs residence country.

FCNR Account

This account allows NRIs to hold deposits in foreign currency, safeguarding them against exchange-rate fluctuations. It is ideal for those wanting to hold savings in a stable currency while earning interest. Interest on FCNR deposits is also tax-free in India. This, along with currency risk protection, makes them a smart choice for NRIs wanting to diversity investments and reduce tax liabilities.

Adhere to tax norms

Many NRIs think that money deposited in NRE or FCNR accounts is automatically tax-exempt. While interest from these accounts is tax-free, the source of the deposited funds matters. Funds from taxable sources, like income or capital gains in India, may be taxed.

Many NRIs overlook the benefits of the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. As a result, they face double taxation on the same income.

Points NRIs must pay heed to

Recommends promptly notifying the bank of any change in residential status when moving out of India. Also stresses the importance of evaluation income sources and carefully selecting the most suitable account type for individual needs.

Be aware of the rules regarding joint holdings. Unlike NRE and FCNR accounts, which permit only non-resident joint holders, NRO accounts can be held with residents as well.

NRIs planning to return to India should consider opening a Resident Foreign Currency (RFC) account.

NRIs favors real estate and deposits, sometimes neglect asset allocation and diversification, leading to underinvestment in asset classes like fixed income and equity.

For More Details: Pooja Manoj Gupta, visit www.giia26.com

Email: pmgiia26.com Mobile  9868944340