Oct 25, 2017 Article

Understanding the Concept of NRI Banking

Before we begin to understand what exactly NRI banking is, let us first take a look at what is meant by the term NRI. As most of you are aware, NRI stands for Non-Resident Indian. An NRI is an Indian citizen who is residing abroad for an uncertain period, due to business or employment. Also, any Indian, who stays in the country for less than 182 days for the preceding financial year, is also considered an NRI. This person can return to India whenever he/she wants to. However, a person will only be given the status of an NRI if such a person stays away from the country for the most part of the preceding financial year for at least 182 days. If the person extendshis/her stay in India, even by a day, such a person shall be classified as a resident of India, and tax will be levied on the person for the same under the means prescribed by the Income Tax Act of India.

NRI Bank Accounts

Most NRIs find it difficult to open the right type of accounts with Indian banks. To overcome this problem, it is crucial to understand what an NRI account is.NRIs can open their accounts in only two forms: Non-Resident External (NRE)Rupeeaccount or Non-Resident Ordinary (NRO)Rupeeaccount.These accounts can be opened with any bank that has been approved and recognised by the RBI. The NRI will have to maintain a monthly average balance of INR 75, 000/- in the bank account. Both the bank accounts can be opened as savings or current accounts in the Indian currency.

The standard procedure will be followed to open these accounts, and the NRI will have to submit other relevant documents as asked by the bank and the government. Thus, anNRI account can either be anNRE or NRO account. The NRI can choose whichever account he/sheprefers.The NRE and NRO interest rates are fixed, and may change according to the rules prescribed by the bank of your choice and the government. NRE accounts are basically used by NRIs to maintain their funds in a liquid form and in the Indian currency. You can also opt for NRE accounts if you need to freely transfer your funds. Moreover, if you need to keep the funds earned in India, then it’s better to opt for NRO accounts.

Benefits of NRI Accounts

The major benefit of having an NRI account is that it provides you with considerabletax benefit. The income in the NRI accounts is free from any kind of tax, be it income tax or gift tax. Another benefit is that NRI accounts allow hassle free repatriation. The savings and current account funds can be easily wired from one account to another. The interest rates offered by NRI bank accounts are extremely high. A major benefit is that the interest rate is calculated as per the daily closing balance, giving you a higher return.

The procedure of opening an NRI account is extremely simple. You can apply online and print your copy. Then you must self-attest the copy, and send italong with the required documents. Some banks, for example, HDFC Bank, allow their holders to link their savings NRI bank accounts to a different account used by the holder for investment purposes. Some banks also allow joint holding for NRI bank accounts.

The benefits of NRI bank accounts are multiple. These benefits make banking simpler for NRIs.

NRE and NRO Accounts

Although NRE and NRO bank accounts sound similar, they are different with different advantages and features. Themajor difference between NRE and NROaccounts is that NRE accounts allow repatriation of funds without any limits. However, in case of NRO accounts, you can transfer up to one million U.S. dollars only, along with a certified letter from your chartered accountant. Another difference is with taxations for the interest earned. While the interest earned in an NRE account is tax free, the interest earned in case of an NRO account is taxable.

The money earned in India by an NRI can be deposited only in the NRO accounts, while the NRE accounts are majorly used by an NRI to transfer his/her foreign earnings to India. Another huge difference between the two kinds of accounts is that, NRE bank accounts let you hold accounts jointly with another NRI. However, in the case of NRO bank accounts, there are no such restrictions. The NRO account can be jointly held with an NRI or with an Indian citizen.

While opening or opting for an account, ascertain your purposes and study the accounts. Choose the account that suits your criteria.