Five reasons to open an NRI Account
August 25, 2020
The Foreign Exchange banking operations in India are governed under the Foreign Exchange Management Act, hereinafter referred to as FEMA. As per the extant FEMA regulations, a Non-Resident Indian (NRI) can only operate Non-Resident External (NRE)/Non-Resident Ordinary (NRO) bank accounts. Such accounts include NRE/NRO Accounts. Both NRE and NRO Accounts are rupee-denominated, but differ in terms of acceptability of the credits in the account. While NRE Accounts accept only foreign currency credits, NRO Accounts can accept both foreign currency as well as rupee credits. As such, NRO Accounts remain suitable if the Non-Resident has domestic sources of income, whereas NRE Accounts may be opened by NRIs if they want to remit their foreign incomes in an Indian banking account.
Here are five reasons why you should open an NRI Account:
1.Compliance with FEMA guidelines
An NRI must perform all its banking operations in India through an NRE or NRO Account, as they cannot maintain and operate a regular Savings Account. As such, opening an NRI Account helps you to comply with the local regulations while seamlessly receiving foreign funds
NRI Accounts provide repatriation benefits to the account holders in terms of smooth flow of funds from within India to a foreign country. However, there is a small difference between NRE and NRO Accounts with respect to repatriation of funds. While the account holders can freely repatriate the principal as well as interest in NRE Accounts, NRO Account holders can only remit interest while the principal can be repatriated, subject to certain specified limits.
3.Better returns than foreign countries
Many countries across the globe, have prevailing interest rates in the range of <0-3>%, while few countries, have negative benchmark <10>-year yields prevailing. In simple words, negative yields imply that the bank takes some charges for handling your money, instead of giving returns as interest income. As such, NRIs can generate better returns by maintaining the balance in their NRE/NRO Account in India. Furthermore, the easy and complete repatriability of funds make NRE Accounts more attractive for NRIs.
The interest income earned by the account holders through NRE bank and deposit accounts is exempt from tax, as per the prevailing tax laws. As such, the interest income stays tax-free in the hands of the account holder and with no tax deduction, the returns are compounded to help the money grow faster.
5.Ease of FCNR deposits
Apart from the option of maintaining NRE/NRO Savings Accounts, NRIs can also open NRE/NRO deposit accounts and avail of better returns. However, such accounts continue to be rupee denominated. To reduce the risk of Foreign Exchange fluctuations, NRIs can opt to maintain Foreign Currency Non-Resident (Bank) deposit, commonly referred to as FCNR (B) deposit. Such deposits maintain the balance in a specified foreign currency, and as such, the interest is also credited in foreign currency only. The rate of such deposits depends upon the base foreign currency and to add to the suitability of such deposits to park foreign currency funds, the interest earned on FCNR deposits is also considered tax-free in India as per the current tax laws.
Banking is the lifeblood of the economy, and in the era of globalisation, maintaining and operating an NRI bank account can help the NRIs to sustain their financial needs conveniently.
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