Indian citizens who are non resident under FEMA and non citizen persons of Indian Origin (PIO), collectively referred as Non Resident Indians (NRI), are allowed to have three types of bank accounts in India — Non Resident Ordinary (NRO) , Non Resident External (NRE) account and Foreign Currency Non resident (FCNR) Account in India. Let us discuss the first two types of accounts here.
Non Resident Ordinary (NRO) Account
As soon as you become a non resident under FEMA, you should intimate your banker about it, who in turn will designate all your existing bank accounts as NRO accounts. A non resident person can open a fresh NRO account as well after becoming a non resident. A person who is not an NRI can also open an NRO account during his visit to India for the limited purpose of staying in India. However, a citizen of Pakistan or Bangladesh requires prior permission of the Reserve Bank of India (RBI) to open an NRO account. An NRO account can be opened jointly with any either a resident or a non resident. All NRO accounts are rupee denominated and can be in the form of a saving, current, recurring or a fixed deposit account and can also be operated by a resident power of attorney holder.
Any amount which is remitted to India from abroad through proper banking channels can be credited in it. The non resident can also deposit foreign currency upto $5000 duly supported by a currency declaration form during his visit to India. Any regular Indian income like rent, dividends, pension, sale proceeds of Indian asset etc. of the non resident can also be credited in it. A gift or loan in Indian currency from a close relative can also be deposited in the NRO account.
An amount upto $10 lakhs can be remitted abroad every year from an NRO account. Local payments for rents of property, taxes and as well as for making investments on non repatriation basis can also be made from an NRO account. Please note that once you come back to India for good, you need to intimate your bank to redesignate your NRO accounts as resident accounts.
Non Resident External (NRE) Account
An NRE account can only be opened after you have become an non resident under FEMA. NRE account can be opened by you personally only and not through a power of attorney holder. You can maintain more than one NRE accounts in India. An NRE account can be opened in Indian currency only. An NRE account can also be opened jointly but only with another non resident. A citizen of Pakistani or Bangladeshi origin cannot open an NRE account. It can also be had in various forms like, savings, current, recurring and fixed deposits.
NRE account is like a bank account maintained outside India and the amount from it can be freely transferred to another NRE account or remitted outside India without any limit or permission. The RBI permits only limited credits in the NRE account. All the money remitted from outside India in any permitted currency can be freely credited in the NRE account. Likewise, any amount realised on cheque drawn in foreign currency on your bank account as well as proceeds of any draft or traveller cheques issued outside India can also be also credited to the NRE account.
Sale proceeds of all the investments made on repatriation basis can be freely credited to an NRE account. Any foreign currency declared in a foreign currency declaration form while on visit to India can also be deposited in the NRE account.
The money in an NRE account can be used for making investments in India on a repatriation basis or otherwise or for payment of EMI of home loans. Loans can also be obtained against security of balance in these accounts in India as well as outside India.
The amounts lying in your NRE account can be freely transferred to your NRO account. However for reverse i.e. for transferring money from your NRO account to NRE account, you need to follow the prescribed procedure and only the money on which Indian taxes have been paid can be transferred to an NRE account. Once the money is transferred from an NRE account to an NRO account, it loses it free transferability character attached with an NRE account. So think twice before you transfer your money from NRE to NRO account.
The author is tax and investment expert and can be reached on firstname.lastname@example.org