Last updated on September 23rd, 2020
When I was living in India, life was really simple. When I got my first job, the first thing that I did was to open a savings account. Over the years, I didn’t do much different, just changed banks with each job.
That changed as soon as I landed in Australia. I was blissfully unaware of any such thing as NRO/NRE account until one day. I wanted to transfer some money from my Indian savings account to Australia.
My reasoning was simple. I used Transferwise or Instarem to transfer funds from Australia to India. Naturally, I assumed that I can transfer funds the other way around using similar services. Sadly, things are not that simple when you get the tag of NRI.
Hello, Mr. Non-Returning Indian (NRI)
In simple terms, if you are staying out of India for a period of 182 days or more in a financial year, you would be considered Non-Resident Indian(NRI).
Once you become an NRI, you cannot hold domestic savings account in India anymore as per FEMA act. Though banks currently have no way of knowing when you become an NRI, it is illegal to hold the resident savings account.
So what are your options if you want to keep money in Indian banks after becoming an NRI?
Reserve Bank of India allows an NRI to open three kinds of account – NRO, NRE and FCNR. Technically there is forth one called RFC. However, RFC is mainly for Indians who return from overseas and become resident Indian. So, it has very little use for the current discussion.
The NRE and NRO account combination is so common that some banks refer to them as NRI accounts. Don’t get confused by that. There is no such thing as an NRI account. The NRI account is just an umbrella term used to refer to any account that an NRI can hold.
What Is Non-Resident Ordinary(NRO) Account?
NRO account is nothing but a savings account for NRI. NRO account is useful if you earn income in India such as rent, dividend, policy returns and so on. It can also be used to make local payments such as bill payments, online shopping, premiums etc. As an NRI, you have the option to either close your existing savings account or convert it to NRO.
Some of the useful highlights of NRO account are:
- NRI, OCI or even PIO can open NRO account
- You can deposit in Indian Rupees (INR) or foreign currencies.
- You can open a joint account with another NRI, OCI, PIO or even resident Indian
- Interest earned in this account is taxable in India
- You can repatriate up to USD 1 million per financial year
How to open NRO account and what are the documents required?
Opening a new NRO account or converting an existing account to NRO is really simple.
You need to fill out and submit the account opening form along with KYC documents. Many banks such as ICICI, SBI or CITI have foreign offices where you can post the form and the documents.
Banks such as SBI even allow you to fill the form online, download the submitted form and send it along with documents to SBI branch overseas or in India. You can even pre-verify the documents before sending them by post.
The list of documents required, differ from bank to bank but commonly consist of:
- Self-attested photocopy of the first page and the address page of the passport and copy of PIO or OCI card, if applicable
- Copy of visa letter
- Self-attested photocopy of Pan card
- Self-attested photocopy of overseas Address proof
- Self-attested photocopy of marriage certificate if you are opening a joint account
- 2-3 passport size photographs
Depending on the bank, you might also need to submit proof of income such as last 3 payslips or bank statements. Additionally, you will have to issue a cheque or DD to deposit the initial funds.
What Is Non-Resident External(NRE) Account?
While NRO account allows you to deposit Indian earnings, NRE account allows you to park your overseas earnings. It is especially advantageous if you want to take advantage of the higher interest rates in India.
Let’s say Australian banks pay maximum interest of 3% on the savings account. If you deposit your Australian savings in an NRE FD account instead, you can earn interest @ 6 to 7%. What’s more, the interest in NRE account is tax-free in India.
A word of caution: Please note that even though you deposit money as a foreign currency, it is converted to INR in the NRE account. That means you are exposed to the exchange risk i.e. fluctuations in the currency rates. For example, if you invest heavily in NRE FD to take advantage of the interest rate and if tomorrow INR takes a dive, your profit can effectively go down to zero as well.
Some of the useful highlights of NRO account are:
- Similar to NRO account, NRI, OCI or PIO can open NRE account
- You can deposit only foreign currency in NRE account but the account itself is maintained in INR
- You can open a joint account with another NRI only
- Interest earned in this account is not taxable in India, however, you may have to pay tax on the same in Australia
- There is no limit on repatriation of the money in NRE account
How to open NRE account and what are the documents required?
The process and the documents required to open NRE account are similar to the NRO account. Usually, you can opt for NRE account by ticking a box in the NRO application form itself.
The example above is taken from SBI form, however, the format is similar for all the banks.
What Is Foreign Currency Non-Resident(FCNR) Account?
As I said before, the main drawback of NRE account is that the funds are maintained in INR. As a result, you are exposed to the fluctuations in the AUD to INR exchange rate. If you want to avoid that, FCNR account is your best bet. FCNR is a fixed deposit account where you can deposit foreign currency to earn good returns without worrying about the exchange rate.
Some of the useful highlights of NRO account are:
- Similar to NRO account, NRI, OCI or PIO can open FCNR account
- You can deposit only foreign currency in FCNR account and the account is maintained in the same currency
- You can open a joint account with another NRI only
- Interest earned in this account is not taxable in India, however, you may have to pay tax on the same in Australia
- There is no limit on repatriation of the money in FCNR account
The process and the documents required to open FCNR account are similar to NRO/NRE account. Usually, you can opt for FCNR account by ticking a box in the NRO application form itself.
How To Repatriate Funds From NRO/NRE/FCNR Account To Australia?
All these accounts will be of little use if you can’t transfer money in and out of them when you want. Thankfully, if you are aware of the process and the documents required, you can easily transfer money from one account to the other or even to your overseas account.
From NRO To Overseas Bank Account
You need to get certified Form 15CB from a Chartered Accountant. Form 15CB acts as proof that the source of funds is legit and that you have paid or agreed to pay the required TDS (Tax Deducted at Source).
Alternately, you can also get the certificate from Income Tax Assessing Officer for lower or non-deduction of TDS on the said amount. However, in reality, it is cumbersome to get such certificate from Assessing Officer due to bureaucracy. As such, getting Form 15CB from a CA is the most straightforward option.
As a next step, you need to fill form 15CA on the income tax website. Form 15CA is divided into 4 parts as A, B, C and D. Depending on the amount you want to transfer and whether you have form 15CB or certificate from Assessing Officer, you may need to fill in a different part of the form 15CA.
Once you submitted the form, you will get an acknowledgement. You need to print and sign this acknowledgement and submit it along with other documents to the bank. Once the bank is satisfied with all the documents, it will initiate the transfer.
From NRE/FCNR To Overseas Bank Account
Majority of the banks such as ICICI, SBI, CITI provide the online option to request transfer of money from NRE/FCNR account to an overseas account. As the money is fully and freely repatriable from NRE account, the process is hassle-free. However, each bank might have a different daily maximum limit for outward remittance which you need to be aware of. Also, some banks might charge fees for outward remittance from FCNR account, so it’s a good idea to check with the bank the rules about operating these accounts.
From NRO To NRE/FCNR
Till sometime back, it was impossible to transfer money from NRO to NRE/FCNR. However, as per the latest rules, you can transfer up to USD 1 million from NRO to NRE or FCNR account. The process and documents required to transfer funds from NRO to NRE/FCNR are similar to transfer funds from NRO account to overseas account.
Here is the Infographic which summarises key features of NRO, NRE and FCNR account.
Hopefully, now you got some basic understanding of what NRO, NRE and FCNR means. Here is million-dollar advice before I conclude: getting money into India is easy but getting money out is hard. So when you transfer money to India next time, transfer only what you need, when you need and to the right type of account. You will not regret it.
As always, if you liked the post, please spread the word. If you have any queries, please shoot them in the comments below. Cheers!
