Since the significant announcement by the Reserve Bank of India on May 7, 2012 NRIs can transfer their money from the Non-Resident Ordinary Account (NRO) to Non-Resident External Account (NRE).
The Reserve Bank of India (RBI) permitted NRO to NRE fund transfer subject to payment of applicable taxes within the overall ceiling of USD 1 million in a financial Year .
Transfer of money from NRO to NRE: Before 2012…
Prior to 2012, sending money to NRE account from NRO account was not permitted by RBI. The only way to transfer the amount into NRE accounts was through release from abroad or another NRE account.
Transfer of money from NRO to NRE: After 2012…
The proclamation by the RBI is plainly good news for NRIs looking forward to transferring their money to NRE accounts, which are repatriable in foreign currencies. This change has helped NRIs to save transaction cost. However, there are certain conditions that have to be met before transferring the amount.
NRO vs NRE Account
1. What is an NRO account?
The NRO Bank Account is mainly used for depositing Indian incomes (only in INR) like dividends, rent or incomes through any investment or sale of a property. In case of NRO account both non-resident and resident can become joint account holders.
2. What is an NRE account?
The NRE Bank Account is mainly used for depositing income (in Foreign Currencies like USD, Euro,) from abroad. In case of NRE account, only NRIs can become joint account holders.
Difference between NRO and NRE account is that the NRO account is opened by an NRI in India and used to deposit his incomes earned in India; whereas an NRE account is opened by an NRI in India and used to deposit his incomes earned overseas.
Lack of Awareness about transfer of funds from NRO to NRE
A lot of NRIs are using this privilege; still, a few NRIs are facing difficulties transferring their money from NRO to NRE account. This is mainly due to lack of awareness about the process of how to transfer money from NRO to NRE account which is not so complex. Below are a few conditions every NRI must know about transfer of funds from NRO to NRE.
Rules to transfer funds from NRO to NRE account
To transfer money from an NRO account to an NRE account, you should know the following rules and stick with them to avoid any trouble.
- An NRI can transfer money from NRO to NRE account only if the amount is within USD 1 million in a financial year. The amount/limit is the maximum.
- Transfer of money from NRO to NRE account is subject to payment of applicable taxes . Only if the taxes are clear you can move the funds
- The source of funds in the NRO account should be transferable/-repatriable.
Document Requirements for Transfer of Funds from NRO to NRE
To transfer your money from NRO to NRE account, NRIs need to submit the following documents,
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1. Request Letter to transfer funds from NRO to NRE account. (May be available at Bank)
2. FEMA Declaration.
3. Evidence of Source of funds from Bank.
4. Form 15CA. (Online Application Form is also available at https://incometaxindiaefiling.gov.in/)
5. Form 15CB. (This is a certification from a Chartered Accountant which is required only if the payment exceeds 5Lakh INR).
RBI’s 2011 change….
Decreasing value of rupee incited RBI to exempt interest rate on NRE deposits in December 2011. This change has propelled NRIs to save their funds in NRE deposits , as they are tax-free and freely repatriable. Here, reparation means you are free to move your money to your overseas account.
Benefits of Repatriation
It is beneficial for NRIs to repatriate money since at the time of excess movement (constructively) in the currency exchange rate you can make money by transferring the amounts to your overseas financial account.
Transfer of money from NRO to NRE account can be useful to save some tax on the interest earned.
A little on ‘Taxation’ side…
Do you know the difference in the tax treatment for interest earned on an NRE and NRO account? Yes! Both accounts have different rules. Read on:
- The interest earned on the NRO account is subject to taxation. The tax percent or amount is subject to holder’s tax bracket
- The interest earned on the NRE account is free from taxation. The credit balance in the account is free from wealth tax. Also, a gift given to relative does not attract gift tax.
Conclusion
It is now possible for NRIs to transfer funds from NRO to NRE account subject to certain conditions and guidelines mentioned above. Read and understand the conditions carefully before transferring your funds. In order to avoid financial ambiguities, one is advised to get in touch with a financial expert to clear all the doubts.
Also, to be a successful long term investor, having a well-drafted financial plan will be of immense help. To create a sound financial plan, I strongly recommend you to take advantage of
When you say “source of funds in NRO account should be repatriable”, what does it mean? NRO funds are by definition non-repatriable. That is the biggest difference between NRO and NRE account. Can you kindly clarify?
That’s if the funds that has come to the NRO account has got a source – that can be repatribale. If you are buying a property from your NRE funds and selling it later. That sale proceeds are in your NRO account. Then that has a source which can be repatriable. Hope this clarifies.
Good to read.
Nicely explained!
Dear PBTIKAIT,
Thanks a lot
Ramalingam
Very interest, I didn’t know about all these details.
Lot of information in an easy way to understand.
Good work.
Thanks a lot
You are welcome
Great Text! I like your posts. You provide Very informative content