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Yogi Zone

Useful articles for your finance management by our team of experts

transfer from nro accounts to nre accounts

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Prior to December 2011, NRE deposits were regulated and pegged to the LIBOR. The rates offered for a 1 year deposit ranged between 2.5% to 3.5%. The rates on the NRE savings account then, were at 4%. It was an obvious choice to opt out of NRE deposit investments then. During the same time the rates on NRO deposits were touching 10%. Investments in NRO deposits and accounts attract a withholding tax of 30.9%. Even then, the post-tax return on these deposits would be touching 7% and were an attractive rupee investment.

On December 28th, 2011, RBI deregulated the deposit rates on NRE investments. NRE deposits suddenly became the most sought after investments for NRI customers.

There are two main differences between NRE and NRO deposits.

1.

      

Repatriablity – This is the ease with which money can be taken back to the overseas accounts. NRE deposits are freely repatriable, which means once the deposits matures, an NRI customer can simply give an instruction to remit the funds overseas. On the other hand money in NRO deposits is not freely repatriable. There is a limit of USD 1 Million in a financial year beyond which money from NRO accounts or deposits cannot be remitted overseas. Along with this there is also tedious documentation in terms of proving source of funds for the investments and certificates in formats 15 CA and 15 CB from a practising Chartered Accountant.

 

 

2.

      

Taxability – The income earned on NRE deposits is exempt from Income tax in India. On the other hand income earned on NRO deposits is subject to income tax at 30.9%

 

With the deregulation of NRE deposits and almost all banks in India offering similar interest rates on both NRE and NRO deposits, investments in NRE deposits was an obvious choice. All money that erstwhile was invested in NRO deposits now was being invested in freely repatriable and tax free NRE deposits.

Another change came about in May 2012, which permitted NRIs to transfer funds from NRO accounts to NRE deposits under the same conditions that funds from NRO accounts could be remitted to an NRI’s overseas accounts.

The conditions are

1.

      

The maximum limit for movement of funds overseas or to NRE accounts is USD 1 Million in a financial year

2.

      

The source of funds in the NRO deposits/accounts should be repatriable

3.

      

Taxes as applicable should be paid on the funds before the transfer, which means the certificates 15 CA and CB will need to be submitted to the bank to initiate the transfer.

For most NRI customers who would have invested in NRO deposits prior to December 2011, from remittances from overseas, should speak to their relationship managers and on maturity of the deposits, look to move the funds to the NRE accounts.

Moving the funds into the NRE accounts will also give you the opportunity to benefit from any positive exchange rate movements, since the funds in the NRE accounts and deposits are freely repatriable.

It is important to note, that NRE deposits can be created only from funds which have been remitted from overseas or from another NRE account or FCNR (B) account.

Eligible Credits and Debits -NRO account

Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.

Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.

Eligible Credits and Debits – NRE account

Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers’ cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.

Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.

Source: www.rbi.org.in

About the author:

Daisy Fernandes is a personal finance enthusiast who is also pursuing her Certification in Financial Planning

 

 

 

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