Many Indians settle abroad for better career opportunities, earning money and for completing higher studies. The people who left India years ago but wish to keep themselves associated with the country and maintain the financial responsibilities with their loved ones by opening an NRI account. Indian banks provide various types of NRI account that an NRI can open and manage from anywhere around the world. However, it is essential to know the misconceptions it has about economic implications and then open NRI account in India. We all know that people gather a lot of information from unreliable sources and have encountered a few myths about maintaining NRI accounts in India. Such information has already overloaded many digital channels, so it is natural to develop inevitable confusion. However, we are here to help you to bust the myths regarding an NRI account.
We have listed five common myths about NRI accounts. Let’s check out some common myths and their facts.
All NRI bank accounts are the same.
Fact- Non-resident Indians can primarily open NRI account of three types
- Non-Resident External(NRE) account- The NRE account can be a current account, savings account and a term/fixed deposit account and the money in these types of accounts should be deposited in Indian Rupees only. The benefit of opening an NRE account is that the funds collected are fully repatriable and the interest earned on this account is tax-free. The exemption of taxes is applicable to the particular person who maintains NRE accounts in India and is not qualified for Overseas Company Bodies (OCB). The funds from NRE account can be easily transferred to any other account. One can open this account jointly with a Non-Resident Indian, but there are prohibitions of opening an NRE account with an Indian resident. The NRE account gets transformed into a resident account once the person returns to the country.
- Non-Resident Ordinary account- The basic feature of this account is that the source of funds deposited should not be from abroad. If the account holder signs a letter of authorization, then an Indian relative can operate his/her account from India. If anyone wishes to transfer any amount outside India, they have to do with prior knowledge of the rules set by the Reserve Bank of India. One can easily open an NRO account jointly with an NRI or Indian residents and can also add a nominee to their NRO account. Interest earned on this type of account is liable to tax with 30% of TDS deduction.
- FCNR (Foreign Currency Non-Resident) account- These types of accounts operate only in foreign currencies; thus the source of funds deposited has to be from abroad, and this helps you to keep your earnings in foreign currency denomination. Foreign Currency Non-Resident (FCNR) helps you to minimize the loss done by you due to economic fluctuations. Interest earned on these accounts has to be paid in the same denomination as it is being maintained in and no tax is deducted. From this type of account, you can also get the facility of obtaining overdraft on current or savings accounts against FCNR fixed deposit.
NRI cannot apply for a joint loan with an Indian resident.
Fact- An Indian resident and NRI can jointly apply for any loan in India. The loan will be termed as an NRI loan where the principal borrower will be NRI, and the EMI payments would be made only through the NRI account.
NRI cannot invest in mutual funds and stocks.
Fact- An NRI needs to open the NRE or NRO account for investing in direct equities. It has to be linked with any Demat account which can be opened with any bank or registered stockbroker in India.
NRI account is not liable to tax.
Fact- An NRI’s account is liable to pay tax on income received in India. Stocks income are not taxable up to the amount of Rs.10 lakh, but long and short term capital gains are liable to tax at 10% and 15%. Similarily, Mutual funds investment is treated as capital assets which are liable to capital gains tax in India.
NRI can repay the loan using an existing bank account in foreign currency.
Fact- If any NRI applies for a loan in India, then they need to repay the loan in Indian currency from any one of the NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account or any other banking medium.
It might be difficult for anyone to separate from your motherland and settle down in abroad. Similarly, your near and dear ones have gone through the similar sentiments, and nothing can fill the space of your presence on special moments, and festivals, but at least you can fulfill their financial needs through managing different NRI accounts. Hopefully, this article will help you to differentiate facts from myths about operating NRI accounts in India.