Having the right credit card when traveling can offer you much-needed convenience and additional perks and travel insurance benefits such as travel rewards, sign-up bonuses, airline and hotel loyalty programs, airport lounge access, travel-related discounts, and assistance, to name a few.
One additional perk that certain credit cards offer is travel insurance. There’s no denying that traveling is fun and exciting, but there are always unexpected challenges that may arise during your trip. From flight cancellations to lost baggage to medical emergencies, things can happen that will jeopardize your trip, which can result in a huge financial burden.
This is when travel insurance becomes an essential part of your travel, providing you with financial protection and peace of mind by offering you various types of coverage.
In this article, we will discuss the importance of travel insurance, the various credit card travel insurance benefits, and highlight the top credit cards that offer travel insurance, ensuring peace of mind throughout your trip.
Travel insurance is an important part of travel planning as it helps mitigate the financial risks associated with unexpected travel-related events. It provides protection, peace of mind, and assistance when you need it most, allowing you to enjoy your travels with confidence.
Travel insurance acts as a safety net, providing financial coverage for various mishaps that may occur during your trip. Whether it's reimbursing your expenses in case of trip cancellation, covering medical emergencies and evacuation costs, or compensating for lost or stolen belongings, travel insurance safeguards your finances from unexpected expenses.
If you fall sick or get injured while traveling, especially abroad, medical expenses can be exorbitant. Travel insurance will help you cover the costs of medical treatments, hospital stays, medications, and emergency medical assistance, ensuring you have access to quality healthcare services and medical evacuation if necessary. It provides you with peace of mind and financial protection against unforeseen medical expenses.
Life is unpredictable, and sometimes unforeseen circumstances such as illness, injury, family emergencies, political unrest, or natural disasters can force you to cut your trip short.
Sometimes, unforeseen circumstances such as natural disasters, political unrest, or personal emergencies can force you to cut your trip short. Travel insurance with trip cancellation and interruption coverage can reimburse you for non-refundable expenses like flights, accommodations, and prepaid activities and help you arrange alternative travel arrangements, minimizing the financial impact of unexpected changes.
If your luggage goes missing or arrives late at your destination, travel insurance can reimburse you for essential items you need to purchase while waiting for your belongings. This coverage is especially useful when traveling with valuable items or if you rely on your luggage for essential medications or equipment.
Delays can hamper your travel plans and lead to additional expenses. Travel insurance can cover expenses incurred due to delayed flights, such as accommodations, meals, and transportation. This coverage ensures that you are not left stranded and financially burdened by unexpected delays.
Travel insurance may also offer additional benefits such as 24/7 travel assistance, emergency hotline services, concierge services, and access to pre-trip information and resources. These services can be invaluable when you need guidance, support, or information while traveling in unfamiliar surroundings.
Several credit cards provide various types of travel insurance when you use them to pay for flights, rental cars, and other travel expenses.
Travel insurance coverage provided by credit cards can vary depending on the issuer and type of card. However, there are common types of travel insurance coverage that you may find with certain credit cards.
This coverage reimburses you for any unused, prepaid, non-refundable travel expenses if you have canceled or interrupted your trip due to covered reasons, such as illness, injury, or severe weather.
If your checked baggage is delayed or lost by the airline, this coverage provides reimbursement for essential items you need to purchase, such as clothing and toiletries. The length of the delay required and the coverage offered vary by card.
If your bags are lost or damaged by a carrier or items have been stolen from your baggage, your provider may provide monetary compensation.
If your trip on a common carrier is delayed, you may receive monetary compensation to help cover meals, hotels, transportation, and necessary purchases during the delay.
If you become injured or ill while traveling and require medical treatment, you will get reimbursed for medical expenses, including hospital stays, doctor visits, and emergency dental treatments.
If your illness or injury requires you to return home immediately for care, this coverage provides assistance and reimbursement for emergency medical transportation, including air ambulance services, or medically necessary repatriation to your home country.
In the case of accidental death or dismemberment, while traveling on a common carrier, this coverage will provide financial protection.
This coverage protects your rental car against theft and damage. It saves you from having to purchase additional insurance from the rental car company.
As we have seen, credit cards provide a range of travel insurance benefits and coverage tailored to your travel needs. Although travel insurance provided by credit cards is not as comprehensive as a standalone travel insurance policy, it may provide enough coverage for certain tips.
If you know which credit card to use, you do not have to buy an additional travel insurance policy for your travel abroad.
If you want to buy standalone travel insurance plans, travel insurance companies offer comprehensive travel insurance coverage that will meet your varied requirements.
For more information on travel insurance, visit VisitorsCoverage.com!
To help you make an informed decision, we have listed below the top credit cards that provide robust travel insurance coverage. Explore the options below and find the perfect credit card to protect your travel adventures.
The Chase Sapphire Reserve is a credit card with extensive travel insurance benefits. It provides a wide range of coverage, including medical, trip cancellation, trip interruption, trip delay, lost and damaged luggage, delayed luggage, emergency evacuation, and primary rental car insurance.
Compared to other cards, the coverage amount offered by this card is generally higher. Additionally, for trip delays and baggage delays, the coverage takes effect after just six hours of delay.
Sign up Bonus
60,000 bonus points after spending $4,000 on purchases in the first 3 months from account opening.
Annual Fee: $550
The Chase Sapphire Preferred Card is a favorite among travelers. The card is one of the best travel rewards credit cards for the average traveler because it offers good enough travel insurance coverage for a card with an annual fee of less than $100. With this card, you’ll enjoy trip cancellation/interruption insurance, baggage delay insurance, and primary car rental insurance. It also earns valuable Chase Ultimate Rewards points that can be redeemed for travel expenses.
However, the travel protections offered by this card are not quite as good as those offered by the Chase Sapphire Reserve.
60,000 bonus points after spending $4,000 on purchases in the first 3 months from account opening.
Annual Fee: $95
The Platinum Card from American Express is intended for frequent travelers seeking luxury travel benefits and Platinum Concierge Service.
In addition to its elite travel perks, the card provides extensive travel insurance coverage. You will be covered for trip cancellation/interruption, baggage loss/damage, and access to the Global Assist Hotline for emergency assistance while traveling.
Earn 80,000 points after you spend $6,000 on purchases on the card in the first 6 months of card membership.
Annual Fee: $695
Alongside its robust rewards program, the Capital One Venture Rewards Credit Card provides travel insurance coverage, including trip cancellation and interruption insurance and travel accident insurance. You can redeem your rewards for travel-related expenses at any time.
Earn 75,000 bonus miles once you spend $4,000 on purchases within the first 3 months from account opening.
Annual Fee: $95
The Bank of America Premium Rewards credit card offers a compelling blend of rewards and travel insurance benefits. With this card, you’ll have access to trip cancellation/interruption insurance, baggage delay insurance, and travel accident insurance. Additionally, it allows you to earn unlimited points on every purchase.
Earn 60,000 online bonus points after you spend at least $4,000 in purchases in the first 90 days of account opening.
Annual Fee: $95
When selecting a credit card for travel insurance, consider the following factors to ensure you choose the right one for your needs:
What kind of travel insurance benefits are you looking for?
Not all cards will have the same travel insurance benefits, so you'll need to examine the specific coverage offered by the cards. Some cards offer only limited travel insurance benefits, such as trip cancellation and interruption and secondary car rental insurance benefits, while others may include trip delays, baggage delays, medical emergencies, emergency evacuations, and much more.
How much coverage is enough for you?
No two credit cards are equal, even when they offer some coverage. Understand the coverage limits, exclusions, and any requirements, such as pre-existing condition clauses or minimum spending thresholds, to activate the benefits. Also, you may not be fully covered depending on your total trip cost. Similarly, rental car insurance coverage may not cover all types of rental cars.
Compare the coverage limits and terms of different cards. Read the maximum coverage amounts for medical expenses, trip cancellation, interruption, and baggage loss, to name a few. Go for cards with adequate coverage that align with your needs and potential costs.
When will coverage apply?
Having coverage doesn’t mean that it will apply all the time. Trip cancellation insurance permits trip cancellation only for specific covered reasons. Rental car coverage usually does not encompass liability coverage, indicating that the vehicle is insured but you, as the driver, are not.
What are your travel habits?
Take into account your travel patterns and preferences. Do you frequently travel domestically or internationally? Do you mainly fly or use other modes of transportation? Stay at hotels or opt for alternative accommodations? Examine which types of coverage are most relevant to your travel style and prioritize them when comparing credit card options.
What is the card's annual fee?
Many credit cards with robust travel insurance benefits often come with an annual fee. See if the benefits outweigh the card's annual fee, depending on the expected usage of the card and the value you will receive from the travel insurance coverage. Additionally, consider any other perks or rewards associated with the card that may offset the fee.
If there are additional card benefits?
Besides travel insurance, assess the card's other features, such as travel rewards, airport lounge access, travel-related discounts, or concierge services. These additional perks can enhance your overall travel experience and provide added value.
What are people saying about the cards?
Research online reviews and seek recommendations from other travelers who have experience with the credit cards you're considering. Their insights can offer valuable perspectives on the reliability and quality of the travel insurance coverage provided.
Lastly, read the fine print and remember that credit card terms and conditions can change over time, so it's essential to review the details and confirm the coverage before applying for the card.
How do I file a travel insurance claim with my credit card?
The process for filing a travel insurance claim varies among credit card issuers. It's best to contact the number on the back of your card to inquire about the necessary steps to initiate the claim process.
Is credit card travel insurance sufficient?
It depends. Review the details provided in the credit card's coverage documents and assess if the coverage amount and reasons covered are adequate for your specific trip and personal circumstances. If not, consider obtaining a separate travel insurance policy that offers additional coverage. It's also important to consider whether your health insurance extends coverage to out-of-state or international claims. Each insurance company has specific policies that should be understood before embarking on your travels.
Does credit card travel insurance work?
Credit card travel insurance does work, but the types of coverage, coverage amounts, and limitations can differ significantly from one card to another. Carefully read the fine print in documents such as your credit card agreement and benefit terms to understand the limits and exclusions of the benefits. Be prepared for some back-and-forth communication if you need to submit a claim.
Credit card travel insurance can provide valuable coverage and benefits for your trips. To get the best credit card for travel insurance, it's essential to thoroughly understand the specific terms, limitations, and coverage offered by credit cards.
Carefully review the fine print and assess if the coverage amount and reasons covered align with your travel needs. Depending on your circumstances, it may be necessary to supplement your credit card coverage with a separate travel insurance policy.
While credit card travel insurance can be beneficial, it's crucial to be informed and prepared to ensure you have the necessary protection for a worry-free and enjoyable travel experience.
For more information on travel insurance, visit VisitorsCoverage.com!
Travel insurance and sending money overseas are two important aspects to consider when planning international trips. If you are looking to send money overseas, it is important to consider exchange rates, choose a reliable, cost-effective money transfer that will help you save on fees, and maximize the amount received by your recipient. For instance, when sending USD to INR, it is important to compare the USD/INR exchange rates and find the most favorable option for sending money.
Both travel insurance and sending money overseas require careful consideration and research to ensure a smooth and secure experience during your international journeys.
Growth in digital remittances can be a game-changer in international remittances, mainly in terms of reducing the cost of global money transfer, increasing accessibility, and being more customer-centric. In the case of Nepal, which is one of the highest recipients of remittances in the world, youth are leading the mobile and digital revolution in the country. 50% of the users of eSewa, Nepal's most prominent digital wallet, are between the age of 18 to 30 years. With eSewa, users can make various payments such as pay utility bills, pay internal bills, recharge phones, book airline, and bus tickets, scan and pay to merchants, make a bank transfer (from eSewa to a bank account), and so on. There are also cashback and reward points upon registration. Established in the year 2019, eSewa Money Transfer is affiliated with F1Soft Group. With 15 million users (almost half of the country's population), F1Soft has been the leading fintech company in Nepal since 2004. eSewa is licensed by Nepal Rastra Bank under foreign exchange regulation, so it is a safe and highly regulated mode of money transfer. It offers traditional brick-and-mortar and agent-based remittance services along with the non-traditional digital modes of remittance.Money Transfer Services from the U.S. to Nepal with eSewa eSewa is partnered with various leading money transfer companies such as MoneyGram, WorldRemit, Remitly, Skrill Money Transfer, TerraPay, WireBarley, enabling customers from the U.S. to send money to friends and family in Nepal directly into the recipient's bank account or eSewa wallet.The account deposit service is available in more than 65 banks in Nepal. With more than 4.2 million registered eSewa wallet users, the addition of remittance service to eSewa wallet will provide a boost in remittance inflow to Nepal.Remittances to Nepal constitute a major portion of the country's foreign exchange reserve, surpassing both the official development assistance and the total foreign direct investment. In 2019, Nepali migrant workers sent home $8.64 billion which constituted 25.4% of the country's GDP. Sending Large Amount of Money from the U.S. to NepalThe U.S. to Nepal money transfer corridor is a thriving one, with many money transfer operators competing for business. Here are the top 5 money transfer service providers from the U.S. to Nepal.XoomPayPal-owned Xoom, a leading digital money transfer provider is one of the fastest, secure and convenient ways to send money from the U.S. to Nepal. The Xoom mobile app or website allows users in the U.S. to send money in an instant to friends and family in Nepal using their U.S. bank account, debit card, or credit card. Xoom has partnered with major banks in Nepal - Everest Bank Ltd., Nabil Bank, Himalayan Bank, Nepal SBI Bank, and others offering instant bank deposits. The money can be transferred to a bank account or picked up from an agent location (from over 4000 cash pickup locations) in Nepal. The maximum transfer amount is $9,000 per transfer when using Xoom transfer. The transfer fee varies depending on the method. Bank transfers are usually free of cost. Fees for payments by card are percentage-based.Do keep in mind that a margin is added to the exchange rate when converting U.S. dollars (USD) into Nepalese rupees (NPR).Wise (formerly known as TransferWise)Wise (Ex-TransferWise) is a London-based financial technology company regulated by (Financial Conduct Authority) FCA in the UK. For online money transfers from the U.S. to Nepal, Wise is a secure, fast, and low-cost option. There are no hidden charges, no marked-up exchange rate. Wise gives you the interbank exchange rate for your transfers. You can pay by direct debit, bank transfer, debit card, or credit card. Bank debit or ACH is the cheapest followed by bank transfer. While payment via credit cards has more fees. Depending on the transfers, the money can be reached in one day or even within seconds. There are limits to how much you can send to Nepal. For larger transfers, Wise might ask you to provide your ID card. To initiate the transfer process, sign up online or in Wise's app for free.WorldRemitWith WorldRemit, Nepalese immigrants in the U.S. can send money online to recipients in Nepal. The money can be received via cash pickup, bank deposits, mobile money, and even airtime top-up.The cask can be pick-up from thousands of Samsara, NIC Asia, and Citizen Bank locations within minutes. The bank transfer may take 1 business day.You can send up to $5,000 per transfer with bank transfer and up to NPR 300,000 with the cash pick-up option. A maximum amount of NPR 1,000,000 can be sent in a day. The transfer fee will depend on the transfer amount. WorldRemit adds a margin to the exchange rate.Muncha Money TransferMuncha money transfer lets you send money to Nepal from all the 50 states in the U.S. It is a preferred choice for many NRN (Non-resident Nepalese) as an online payment gateway. Muncha Money Money Transfer and ThamelRemit are popular ways of sending money.An individual with a U.S. bank account can transfer money to the recipient's bank account in Nepal. It takes about 48 hours to complete the transfer. It is licensed by Nepal Rastra Bank, so your money is safe and protected. It offers ACH transfer and can send up to $10,000 per transaction from the U.S. to Nepal. The first transaction is free for all customers.ThamelRemitThamelRemit is an online money transfer platform for sending money from the U.S. to Nepal. It is trusted by more than 50,000 Nepalese in the U.S.The platform is supported by Siddhartha Bank Ltd., one of the fast-emerging banks in Nepal, and is powered by MachNet.The transfer is carried out via ACH where money is directly debited in USD from your bank account in the U.S. and transferred to the recipient's bank account in Nepal in NPR. There is no charge or bank processing fee within Kathmandu Valley.Outside Kathmandu Valley, there may be a bank processing fee that is deducted from the recipient's bank account as per the particular bank's rules and regulations. The exchange rates offered are highly competitive and fees are affordable. You can send up to $10,000 per transaction and get the money deposited into the destination account in 48 hours.TakeawayThanks to the increasing number of users of digital payment platforms like eSewa and others, the cashless transaction is becoming a reality in Nepal.The above list is not an exhaustive list of all the services available to send money from the U.S. to Nepal. It can be difficult to choose one from a plethora of options. Before you make the transfer, compare the money transfer service providers to get the best value for your money while sending money from the U.S. to Nepal.Nepalese living abroad prefer to send remittances directly through mobile banking, internet banking, or digital wallet. It offers ease of use, convenience, lower cost, and a competitive marketplace of the money transfer industry that gives better service and better exchange rates.
How do you pay your employees? As an employer, paying your employees is an important part of your business. Direct deposit to your employee's bank account or issuing paper checks are two of the most common ways of compensating them. Gone are the days when employees used to get paid in cash.But what happens when some employees have no bank accounts? This is where paycards come in. Paycards for employees are an alternative option when the employees do not own a bank account, and the employers do not want to pay in hard cash.It is estimated that about 5.4% of U.S. households (approximately 7.1 million) were "unbanked" in 2019, according to the U.S. Federal Deposit Insurance Corporation (FDCI). An unbanked household means no one in the household had a checking or savings account at a bank or a credit union.For small businesses with employees with no bank accounts, paycards can be a convenient option as a payment option.Direct deposit and paycards both offer the benefit of a paperless payroll distribution process and allow the employer to electronically transfer funds conveniently. While direct deposit is the norm for many businesses, paycards are gaining popularity each year.There are pros and cons of using paycards, and in this blog, we will discuss if paycards are right for your business and employees.What is a Paycard?Paycard is a lot like a prepaid debit card as it is made of plastic and can be pre-loaded. In the case of a paycard, the money loaded comes from the employer in the form of an employee's pay. The card carries the issuer name such as MasterCard, Visa, or Discover.Are Paycards Good, and Who is it For?A pay card can be used to pay an employee who does not have a bank account. Paycard holders or employees can cash out from paycards at a bank, ATM, or other point-of-service locations.Employees can also pay bills over the phone using their paycard number or authorize electronic bill payments to specified companies.Employees can use paycards at any merchant, grocery store, retail shop, or gas station that accepts debit cards.Do Paycards Have Fees?By law, employees must be able to access their wages in full without any fees. They can obtain the cash at a bank teller, ATMs associated with the card issuer, pay bills by telephone, or use the card for point-of-sale purchases.However, there may be fees for electronic fund transfers or for cash withdrawals at ATMs that are not in the issuer's network. There may be fees for card replacements, balance inquiries, inactivity fees, or other reasons. The Consumer Financial Protection Bureau issued a rule in April 2019 that paycard issuers must disclose all the fees to cardholders.Employees must be informed of the potential fees. The paycard issuer is required to give you disclosures on such fees before you sign up for a paycard or a payroll card.Also, paycards are regulated by state laws, so you might have to check for additional details depending on your state. Some states are making efforts to reduce fees that affect employees.As you can see, paycards fees mostly affect employees. In the case of direct deposits, employers are the ones who have to pay fees for setting up the payroll distribution system and a transaction fee for each time they transfer wages into an employee's account. The payroll software may also charge a fee for their service.Can Employers Save Money When Using Paycards?Since paycards are reloadable cards, employers can have the banks reload the paycards with their employees' wages for the pay period, avoiding the costs and hassle of issuing paper checks, mailing them, or re-issuing lost checks. The savings may not be a substantial amount but they can add up gradually.Can Employers Choose between Direct Deposit and Paycards?While there is no mandate that employers can only offer either direct deposit or paycards to their employees for their wages, it is safe to check with your state's law on payroll distribution.One-third of states allow employers to require employees to have bank accounts for direct deposit. In such a case, paycards may not be needed. Also, there is no law preventing employees with bank accounts to opt for paycards as their payment option.Though generally, employees tend to prefer direct deposit because of its efficiency and the least costly method of payment, as a business owner or an employer, it is better to give options instead of imposing only one method.Ask your employees about their preferred method of payment and what benefits (convenience, low fees, etc.) serve them the best.In fact, Federal law requires employers to offer alternative payment methods like paper checks or direct deposits.Should Employer Provide Pay Stub?Pay stub provides details of the employees' pay for each pay period. Employers are not required by federal law to give employees their pay stubs. However, many states have laws that require some form of written pay statement.Even if your state doesn't need you to provide pay stubs, you are still required by the Fair Labour Standards Act to keep track of your employees' working hours.For employees, a pay stub gives a record of their wages, deductions, contributions, and other information. It is also proof of income or employment, which is often needed when applying for a loan, credit card, or housing.For employers, a pay stub is useful for tax purposes, and it can be used to resolve any discrepancies with employee pay.Is it Possible for Paycards to be Overdrafted?Usually, paycards works like debit card, allowing cardholders to withdraw up to the limit of the loaded amount. However, there are paycard that allows overdraft for employees. But it can come with hefty overdraft fees if employees use funds over the limit in their account. Usually, you should be able to prevent misuse by subscribing to an overdraft protection service.Will Paycard Affect Credit Score?Paycards, like all prepaid cards, do not affect an employee's credit score.What is a Paycard Gets Lost or Stolen?A replacement card can be issued in such cases. The employee needs to notify the employer, and then the employer should immediately notify the card issuer. The employee is not liable for the incident as long as the issue is timely reported. Paycards come with similar protection as that of a prepaid card.The reporting time is determined by the card issuer. If you wait longer to report after learning of the loss and theft, the fraudulent charges may increase. You may have to pay a fee for the replacement card.Pros and Cons of PaycardsProsA win-win situation for unbanked employees and their employers.Green alternative to paper checks.Immediate payment to employees.No hassle of cashing a paycheck.No monthly or maintenance fees.Added security when assessing their funds (paycards require a PIN).Employees can report to the issuer if funds are used unauthorized.Paycards can be reloaded during each payday, saving money on issuing paper checks.Added efficiency for the employer as the employer would not have to physically present or mail paychecks to unbanked employees.ConsEmployees may incur fees for several reasons. Be aware of such potential fees.Employers have certain responsibilities to educate employees about the usage of paycards.Limited range of services and flexibility in managing your funds compared to bank accounts and other prepaid cards.The best paycards programs are easy to set up, have lower fees, quick access to funds, and provide a range of benefits such as cashback and discounts. We have made a list of popular paycards providers for businesses:Wisely Paycard by ADPOnline portal and mobile appCompatible with Apple Pay, Samsung Pay, and Google PayZero cost sign upNo hidden feesNo credit checkNo overdraft feeZero cost direct deposit of pay and other sources of income (including government benefits)Accepted wherever Visa is acceptedKeep track of spending and account balances 24/7 on the appGet cash back at major retailersSurcharge-free ATM withdrawalsFDIC insuredSecurity features include instant card lock, purchase protection, and travel alert notificationsRapid PaycardDirect Deposit onto rapid paycardLoad funds from approved checks with Ingo Money mobile appsNo fee for cashing paycheck24/7 account access with rapid! Access mobile appNo credit checkCan be used at ATMs, merchants worldwide, wherever Debit Mastercard or Visa debit cards are acceptedPay bills and make purchasesBook airline and hotel reservations onlineEarn interest on savings accountGet cash back rewardsFDIC insuredMoney protected with Zero Fraud LiabilityKittrell PaycardNo fees to use (there are fees for certain situations)Fee-free ATM network with MoneyPassWebsite and Kittreall AppGet real-time alerts and push notificationsCash back at point-of-sale terminals2-way texting to manage your card and accountCompatible with Apple Wallet, Google Pay, Samsung PayEasy portability (Get direct deposit of stimulus checks, tax refund, benefits)Freeze or unfreeze card on-demandSkylight PaycardZero sign up feeNo credit checkNo minimum balance Personalized your card with a family photo or unique imageManage money anywhere on Mobile AppDirect deposit your government benefits, tax refundsUse anywhere where Visa Debit & Debit Mastercard are acceptedFDIC insuredZero liability protectionPay bills onlineEarn interest on savings accountEarn cash back with Payback RewardsSend money to or receive money from friends and family with Netspend cardsSet text alerts about transactionsRefer a friend and boost your card balanceSkylight overdraft limit is $100 & 3 times/ monthConclusionOverall, paycards can be convenient and cost-effective for employees and employees when compared to paychecks or for those employees with no bank account. And the paycard fees are becoming more transparent and competitive.While paycards can be challenging at times, especially when you are employed in multiple jobs and have a separate paycard with each employer, your funds are scattered in multiple cards so it becomes difficult to manage your finances. Some may prefer to put all their money in one place, like a checking account.However, if you can't open a bank account, a paycard is a great option to get paid. Read the fine prints before signing up for a paycard and know the potential fees that come with it.
It is common for a Non-Resident to open an NRE Account or other similar accounts, with a bank in India and transfer their earnings from their foreign country into these accounts. NRI's are not required to pay taxes in India on earnings that they received outside of India however these guidelines are frequently abused. An influx of cases of money laundering and unexplained funds in NRE accounts has prompted the Enforcement Directorate of India (ED) to crack down on irregularities in NRE account activities.In one specific example, an individual transferred a large number of funds into a family members' NRE account. Upon investigation by the ED however, it was found that these funds were commission income which was generated abroad. He was then asked to furnish the overlaying contracts for these commission incomes and was penalized accordingly.As an NRI with an NRE account, it is very important that you are able to explain the source of your funds in your account should you be contacted by the ED. Failure to explain the source of your funds in your account is considered to be a violation and can result in tax penalties.In order to avoid being questioned by the ED in regards to NRE account activity, it is highly recommended that all NRI's protect themselves in the following ways:Distinguish between current account transactions from capital account transactions.Inform all applicable parties regarding any changes in residential status.Distinguish between Person Resident in India & Person Resident Outside India.Keep track of investments made in India from Rupee funds in India. For example, when their residential status is that of a Resident and the investments made from funds remitted from abroad and when their residential status is that of a non-resident.Understand the sale proceeds of movable and immovable assets in India.Comply with statutory guidelines for filing documents and reporting requirements for different transactions.Do not enter into capital account transactions that are prohibited or are not covered under general provisions of permission.Do not enter into current account transactions that are prohibited or restricted.Avoid participating in any " net - off " transaction with a resident individual.Never instruct or allow a resident to make an outward transaction on your behalf.The Foreign Exchange Management Act (FEMA) extends to all of India and makes offenses related to foreign exchange, civil offenses. Such offenses are not taken lightly by the Indian government, which is why it is imperative that these guidelines are abided by and taken seriously as any violations will likely result in penalties and legal action. Running into issues with your NRE account and have to deal with the ED can be extremely stressful and nerve-wracking, which is why it is important to follow the above guidelines in protecting yourself from such circumstances.
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