NRE account vs normal savings account
I normally transfer money to my everyday savings account in India from overseas. I do not have NRE or NRO (Any sort of NRI) account.
The money I transfer into is the account i was operating while I was in india which is normal savings account.
I am trying to figure out what will happen if i continue doing this without opening a NRE account. Is it necessary to transfer fund into NRE account rather than transfering into normal savings account?
I understand there is no tax payable when I transfer into NRE account. Please advise.
Asked 3 years ago in Income Tax from Ahmedabad, Gujarat
Interest on saving or fixed deposit in NRE account of a non resident or a person who is not ordinarily resident in India, will not be taxable in India under section 10(15) (fa) of Income tax Act. Therefore Kindly open a NRE Account and earn a tax free interest as long as you are non resident or not ordinarily resident in India.
NRO account are the normal saving account which is designated by bank as NRO account . Your transfer of money on day to day basis to your saving account is in fact a NRO account , only you have to get is designated as NRO account by the bank manager by showing your passport copy and detail of employment outside India if any .
You can very well continue it and there is no tax implication . However the benefit of the NRE account is that it is open with a bank in India and it is like a foreign currency account where you can park your credits in the foreign currency itself without converting to INR . you can transfer the funds from NRE account to NRO account as per your wishes . So credit from outside India to an NRE or NRO account does not attract tax .
The tax arises when some one within India transfer any money to your NRE Account as it is treated as making the payment outside India and when you transfer from your NRO account to NRE account .
The income earned on NRI SB account is taxable and you need to pay taxes if it exceeds the taxable limits, as applicable in your case. You may keep in mind the following issues :
1 Your income will be treated as income accrued and arisen in India and you will be assessed accordingly on such income.
2 If you are keeping money in FDRs, there may be TDS on interest on such FDRs. You will need to file IT returns to claim refund, if you don't have taxable income.
3 You also need to have PAN if you are having interest income on SB/FD accounts.
4 You may be covered under Double taxation relief and you can claim the tax paid by you in India as a credit against your tax liability in your country.
5 Amounts transferred from NRI SB accounts to NRE account will have to be backed by a CA certificate about the discharge of your tax liability.
If you are overseas then transferring money from your resident country to your NRE account is the best bet.
The key features of the NRE account is that the money in the NRE account is freely repatriable which means that it can be sent out of the country any time and there is no upper limit on it. The second important thing about this type of account is that the interest is completely tax free.
So it would be ideal to bring in money into India through the NRE account.