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Why Open An Nri Account?

By Author: Samantha Kennedy
Total Articles: 2

It is a common scenario that people who settle internationally, get a citizenship there and then wonder if they need to open NRI account in India. They also find themselves in a dilemma of whether they should opt for an NRE or NRO account. They also seem to ask if they can still continue with their existing saving account in India.

Browse through the article to find out-

Let us say you are abroad for a span of six months. If that is the case, then you do not have to open an NRE or an NRO savings account. Plus, you can continue using your savings account just the way you do.
However, if you are moving abroad for a span of more than six months, then it is mandatory for you to notify your bank about it and your bank account so it can consequently be converted into an NRO account i.e. a Non-Resident Ordinary account.

One would wonder, why is the term important?

This is solely for tax purposes. If someone manages to spend more than 182 days abroad in a given financial year, that makes the person liable to be considered as an NRI. Conversely, if that person spends less than 182 days abroad, there would be no change in consideration as such and the individual can continue holding a savings account as usual.
Let us assume that you are intending to travel to the USA and reside there for more than a year. In such a scenario, it is not important for you to have an NRE or NRO account in India unless you really have a need to save your money in Indian currency.

Why NRE and NRO?

Many Indians who’ve settled abroad prefer to open NRI account and have their money stored in Indian denominations. They also go as far as investing in fixed deposits, mutual funds, stock holding and so on.
To open an NRI account, there are only two options you can choose from – NRE and NRO.

In an NRE (Non Resident External) account, you can only deposit foreign currency like USD, GBP or EUR. In an NRO account, you can deposit both foreign and Indian currency.

Moving abroad mandates you to convert your savings account to an NRO account once you hold the NRI status. The question that arises is, once you become an NRI, should you open an NRO account or an NRE account?
If you intend to open an NRI account that allows you to have fixed deposit for investments, then you should definitely head for NRE accounts as interest earned on an NRE account in India is tax-free.

However, if you have a source of income from India, like rental income or dividend income from a certain stock, this income will be in rupees and this is when you would be requiring an NRO account as NRO accounts allow Indian currency deposits. You need to remember that Indian income would be taxed unless they are more than the exempted limit of Rs. 2.5 lakh. Also, the interest you earn on NRO accounts is also taxable.

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