Many people send money home to India, but a number of NRIs (Non-Resident Indians) have faced problems in maintaining a Rupee account in India. Opening a NRE (Non-Resident External) account in India provides a good option for overcoming these problems.
The Foreign Exchange Management Act (FEMA) does not specify any limits or restrictions on most remittances sent to India by NRIs, making it easy for them to send any amount of money to India.
What is a NRE Account?
An NRE account is a savings account that can be opened by any NRI. It is meant to repatriate funds that would come from outside earnings. This account lets you transfer your earnings to India conveniently with complete security. Money transferred to a NRE account in any foreign currency is converted to INR and permits NRIs to hold and maintain foreign currency earnings in INR. It allows you to repatriate all funds including interest earned at any point of time.
How Does Sending Money to A NRE Account Help A NRI?
If you are a NRI, sending money to a NRE account may be financially advantageous to you for several reasons.
Why Should One Open a NRE Account?
Taxes Applicable on NRE Account Transfer
A NRE account is tax-free, including no income tax, no wealth tax and no gift tax in India for any amount of money transferred to your NRE account. There is also no tax on interest earned on a NRE account.
Income earned by you in the US would be treated as income earned outside India and therefore, the same would not be taxable in India. As long as you pay taxes on the income you are earning abroad, money transferred into India is not taxable. Interest earned on both the savings NRE account as well as the fixed deposit NRE account will be tax free for the investor.
In case you qualify as a resident in India, the interest earned on the NRE account will be taxable regardless of where it is earned. However, if you qualify as a non-resident, you will be subject to taxes only on income that is received in India. In addition, interest paid on your deposits is not taxable in India, but are taxable in the US.
A person is considered to be a resident of India if he or she is in India for 182 days or more during the current year.
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