NRO and NRE Account Tax Implications: A Comprehensive Guide

NRO Accounts allow NRIs to manage their income earned in India, such as rent, dividends, or pension. However, the interest earned on an NRO Account is taxed at 30% of the income accrued, as per Income Tax Act, 1961. Kindly check the taxation details below for better clarity:

• The bank deducts Tax Deducted at Source (TDS) on the interest earned from your NRO account at a rate of 30%, plus any applicable Cess and surcharge.
• After deducting the TDS, the bank credits the remaining amount to your account.

However, there's a way NRIs can reduce the tax burden in their country of residence via DTAA (Double Taxation Avoidance Agreement). DTAA is a treaty signed between India and other countries that ensures NRIs don't face excessive international tax burdens due to the same income taxed in multiple countries.

If you're an NRI looking to transfer funds from your overseas bank account to an account in India, this process, known as NRI repatriation. This includes both the principal amount and any accrued interest, depending on the type of account utilised.

NRE Accounts:

• Funds (both principal and interest) can be freely repatriated to the depositor's country of residence without any cap.
• Ideal for NRIs earning abroad who need unrestricted transfer of funds between India and their home country.

NRO Accounts:

• As per RBI, for NRO accounts repatriation of funds is restricted to a maximum of USD 1 million per financial year, including taxes.
• Funds deposited in an NRO account cannot be freely repatriated until all applicable taxes have been paid as per Indian tax laws.

Selecting between an NRE and NRO account depends on your financial objectives and income sources:

• NRE Account: Suitable if your primary income is abroad, offering tax-free interest and unrestricted fund repatriation benefits.
• NRO Account: Ideal for managing income earned in India, with TDS on interest earnings and flexibility for domestic expenses without conversion hassles.

An NRI can manage both the accounts simultaneously, if required.

Understanding tax liabilities on your NRI Accounts can help you better manage your finances. However, if you're still in doubt, consult a certified financial adviser or Chartered Accountant for better clarity.

Ujjivan SFB offers NRI Savings and Deposit Accounts that come with multiple benefits, including zero balance maintenance criteria, higher interest rates, safe and secure transactions, easy access to funds, and more. Book an NRI Account with us and enjoy a seamless banking experience.

Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

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