When NRIs deposit their foreign earnings in a bank in India, they are confronted with a query that “Is NRE account taxable?”. In this blog, we will discuss NRE account taxation, shedding light on whether NRIs need to pay taxes on their NRE accounts, and provide clarity and insights to help NRIs make informed decisions while staying compliant with the tax laws.
Is NRE Account Taxable?
Under the Indian income tax laws, NRIs are obligated to pay income tax only on the income that has accrued or arisen within India. As a result, an NRE account, which exclusively holds income earned overseas and not in India, remains exempt from taxation.
This means that the interest earned on both NRE Fixed Deposits and NRE savings accounts is not subject to taxation, in accordance with the provisions outlined in Section 10(4)(ii) of the Income Tax Act 1961.
This makes the NRE account an attractive investment option for NRIs to park their overseas earnings.
Interest on NRE Account is Exempt under which Section?
The interest earned on NRE Fixed Deposits and/or NRE savings accounts is exempt from tax under the provisions of Section 10(4)(ii) of the Income Tax Act 1961.
However, it is crucial to note that the tax treatment of NRIs in India is also influenced by the provisions of the Foreign Exchange Management Act (FEMA). Meeting the primary eligibility criteria to hold an NRE account and claim the interest income as exempt necessitates being classified as a person resident outside India, as per FEMA regulations.
Who is a Person Resident Outside India?
According to Section 10(4)(ii) of the Act, individuals categorized as ‘Persons Resident Outside India (PROI)’ under the Foreign Exchange Management Act, 1999 (FEMA) are eligible for tax exemption on NRE (Non-Resident External) interest.
An individual can be considered a ‘person resident outside India’ (non-resident) if either of the following conditions is met:
- The individual’s stay in India was less than the prescribed duration (less than 183 days) during the last financial year (FY).
- The individual visits India for reasons other than the following:
- Performing employment in India,
- Undertaking any business activity in India, or
- Indicating an intention for an uncertain duration of stay in India.
If an individual fails to qualify as a ‘person resident outside India’ as per FEMA criteria, they must promptly inform the bank regarding the change in their residential status from ‘Non-Resident’ to ‘Resident.’ Subsequently, the bank will re-designate the NRE account as a regular resident rupee account.
What is an NRE Account?
An NRE account, also known as a Non-Resident External account, is a type of an NRI bank account. These accounts can be in the form of savings, current, recurring, or fixed deposits. The foreign currency that NRIs deposit into the NRE account is converted to INR.
Benefits of NRE Account
Opening an NRE (Non-Resident External) account comes with several benefits for Non-Resident Indians (NRIs). Some of the key benefits of NRE account include:
Tax-Free Interest
One of the most significant benefits is that the interest earned on the funds in an NRE account is exempt from Indian income tax. This tax-free status allows NRIs to grow their savings without any tax implications in India.
Repatriability
Funds held in an NRE account are fully repatriable, which means that NRIs can transfer the money back to any other foreign account without any restrictions. This makes it easy for NRIs to manage their finances across borders.
Easy Accessibility
NRE accounts offer easy accessibility to funds, either through electronic transfers, checks, or debit cards. This convenience allows NRIs to manage their finances efficiently, even from overseas locations.
Liquidity
An NRE account offers high liquidity, enabling seamless transfer of funds from India to abroad without the need for currency conversion hassles.
Account Maintenance
As an NRI, you have the option to authorize an Indian resident through a Power of Attorney to manage your NRE account on your behalf. Except for the initial opening and closing of the account, this authorized person can handle all necessary operations, including fund withdrawals, ensuring smooth account management.
Multiple Transaction Types
An NRE account allows NRIs to conduct various types of transactions, be it personal, business-related, or investment-related.
Easy Withdrawals
As an NRI, you can conveniently withdraw funds from your NRE account using an international debit card.
Joint Account Option
NRIs can open NRE joint accounts along with other NRIs as well as with Indian residents on a “former or survivor” basis.
Attractive Interest Rates
NRE fixed deposit accounts offer higher interest rates providing NRIs with an opportunity to earn attractive returns on their deposits.
Overall, NRE accounts offer NRIs a convenient and tax-efficient way to manage their Indian income, savings, and investments while residing abroad.
Who can Open NRE Account in India?
- NRIs (Non-Resident Indians) and PIOs (Persons of Indian Origin) are eligible to open an NRE account with an Indian bank.
- Individuals/entities of Pakistan nationality/origin and Bangladesh origin need to have a prior approval of the RBI.
- NRIs residing in Nepal or Bhutan are not permitted to open NRO accounts.
- Students who go abroad for education.
- Seafarers of Indian nationality or origin who are employed by foreign shipping companies.
How to Open NRE Account Online?
Method 1
Opening an NRE account may involve slight variations depending on the bank you choose. However, the general steps to follow are as follows:
- Visit the official website of your preferred bank.
- Navigate to the ‘NRI Banking’ section and select ‘Open NRI account.’
- Access the NRI account opening form.
- Choose the NRE account type.
- Fill in the required details in the form, including personal information, employment details, and overseas-related information.
- Upload the necessary supporting documents.
- After approval, the bank will request an initial payment to activate the NRE account.
Method 2
To open an NRE account online with SBNRI, you have two options:
- Click the ‘Open NRE Account Online’ button in this blog OR
- Follow these steps:
- Download the SBNRI app from the Google Play Store or App Store.
- Sign in using your credentials.
- Click on the ‘Open NRI account’ button.
- Utilize the in-app scanning feature to scan and upload your KYC documents.
- Click ‘Apply’ to complete the NRE account application process.
Contact SBNRI
Due to lots of information and documentation required to apply for NRE accounts, NRE account opening process is lengthy and cumbersome elsewhere. You can download SBNRI App to apply for an NRE account with nominal documentation in just 10 minutes.You can also click on the button below to apply for an NRI account. Visit our blog and YouTube Channel for more details.
