Author Name:   semlovelysharma

Prior to foreign visit, there are several home-works that the would-be expat must keep in mind. Re-designation of local bank account in to NRE, NRO or FCNR is the primary thing to do so that the channelization and calculation of taxable amount would be easy for the person.

Tips to Revise A/C into NRO/NRE/ FCNR Prior to Immigration

Are you planning to work abroad? Have you packed your backpack to join a foreign employer in the US or UK or any other country? I hope you would have done your homework well prior to relocating abroad. Apart from ordeals of visa and passport, there is one thing to be worthy for your concern, and that is your BANK account.

What do FEMA & ITA state?

Since you are going to serve the foreign country, you would be considered as a non-resident of India. But there is a slight difference in the definition of NRIs by ITA & FEMA.

What India’s Income Tax Act (ITA) states is that: “those who join foreign employer abroad either on temporary or permanent basis would be considered as a non-resident of India (NRI) provided that they have spent 181 days there in a financial year.”

But the Foreign Exchange Management Act (FEMA) of 1999 is slightly modified. This law qualifies every such person as the NRI who has gone abroad for employment. It does not deem the mention of the days as ITA approves. It implies that all expat would be recognized as non-residents since the very day they left for abroad in terms of the FEMA.

With the change in the residential status, the confusion may prevail. Since ITA does deem the expat as a resident if their stay does not exceed the requisite 181 days in a fiscal year while FEMA deems them as NRIs, the calculation of tax goes tricky.

For such persons, it is requisite to attend these services intensely:
· Taxability of interest in various bank account
· Repatriation of funds
· Exchange cost, tax and risk

Mandatory to update bank status:

Mostly, those who are likely to be NRIs skip revamping their status in the domestic bank.  But every out-goer must bear in his mind that it’s as essential as getting police clearance certificate for tier 2 visa or passport of UK to relocate there. This is what the FEMA imposes to exercise prior to moving abroad.

Options to choose bank account:
1. NRO: Non-Resident Ordinary Rupee account or NRO is specifically provisioned for the expats. The indigenous account, let’s say current, recurring or saving account, would be designated as NRO.

2. NRE: Like NRO, Non-Resident External Rupee account aka NRE a/c is meant for expats who want to deposit their money in rupee-denomination in the domestic bank. Only inward remittance is permissible in this account by the books of banks in order to provide best services for NRIs. 

Inward remittance determines channelization of money within the domestic bank account. Remittance stands for the payment or the money received as the fee or payment. Suppose an emigrant received rental income from the indigenous property. He wants to credit it to his family in India. That amount can be deposited in the NRE account which allows depositing money in rupees. Later, it can be transferred to his parent’s account.

3. FCNR: Foreign Currency Non-Repatriable Account or FCNR refer to the account meant for depositing fixed deposit for certain period. It’s dissimilar to saving account. The expats can deposit foreign currency in to this account.

Is tax refundable for NRIs if they deposit in NRO account?

Any income earned indigenously, like rental income, by the expat would be termed as the capital gain. It is taxable if exceeds INR 1Lakh in a fiscal year.

ITA executes tax deduction at the source of non-resident’s income sourced from India. Currently, the tax deduction is limited to 30.6% but it can be revised with the introduction of new IT guidelines and norms. But there are a few banks that follow the residential status of the account holder as per FEMA. Amid such following, they begin tax-cutting from the very day they fly abroad. However, the limit of deduction is marginal.

In such situation when they pay tax marginally, they can skip paying advance tax over the income from interest. If anyhow they pay, they become eligible to file petition for refunding that amount. Those whose income is categorized under the lower slab and pay less than 30% tax, they can get refund of the tax paid.

What benefits does NRO account offer?

· It’s a saving account.
· Easy way to deposit Indian currency earned in India.
· Assure higher tax refund.
· Money is transferable to abroad but to a certain limit.
· Only interests are taxable, not the principal amount.
· Fund is transferable within the territory of India.
· Fully inward remittable.

What benefits does NRE account offer?

· It’s also a saving account.
· Foreign currency can be deposited in it.
· Principal amount as well as interest is tax free if the money is deposited in NRE fixed account.
· Any amount is transferable in to the NRO account as well as abroad.
· Repatriable is free.
· Remit funds from $25,000 to $1 million in a fiscal year.

What benefits does FCNR account offer?

· Time deposit is permissible.
· Foreign currency can be deposited as well as transferred wherever across the globe.
· Tax on interest is exempted.
· Deposit is repatriable freely.

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