NRIs (Non Resident Indians) are always bothered about the type of accounts they should open for depositing their funds or incomes. NRIs can avail the facility of opening bank accounts in India. An NRI who is interested in opening a Bank Account in India has been provided with 2 different options by the Government of India. The NRIs can repatriate their funds from their home countries to India by depositing in any of the 2 accounts. The different options in respect of rupees accounts being given to an NRI are NRE and NRO Accounts. These two accounts differ from each other and have respective benefits.

Taxmantra.com has tried to remove this doubt of an NRI in respect of rupee accounts by giving a brief view about the type of accounts and the benefits and differences between them:

a)      NRE (Non- Resident External) Account – It is a type of account in which at the time of opening of the bank account foreign currency is being deposited. This foreign currency can be tendered in the form of traveler’s cheque or notes. It can be in the form of savings, current or term deposit accounts. It can be opened only by an NRI.

b)     NRO (Non- Resident Ordinary) Account – It’s a normal bank account that can be opened by an Indian going abroad for becoming an NRI. An NRO account can only contain funds received from within India. It can also be in the form of savings, current or term deposit accounts. Funds in this account can be transferred to another NRO Account. These funds have to be used only for local (within India) payments in Indian Rupees.

Some differences between these two accounts will make you more clear and specific on the type of accounts to be used:

• Income to be deposited: In an NRE account income earned from abroad can be deposited whereas in NRO account takes into account generally the Indian incomes.
• Who can deposit: In an NRE account only NRIs can deposit but in NRO account both Resident and Non Resident can deposit their incomes and become joint holders.
• Tax treatment on Interest earned: The interest earned on any type of NRO bank as well as the credit balances in this account are taxable whereas interest earned on the NRE account is totally exempted from tax, and the credit balances in the account don’t attract any wealth tax.
• Transfer of Funds: Funds can be transferred from NRE to NRO account but Funds cannot be transferred from NRO to NRE account.
• Repatriation benefit: The principal amount can be freely repatriated from the NRE account but this benefit of repatriation is not available in case of NRO account.

Process to open an NRE and NRO Account

Similar process can be followed in case of opening any of the two accounts i.e. NRE and NRO account. You just need to make a request with the authorized bank. After making the request submit the following documents for further processing –

• Utility bill
• Resident Permit
• Driving License
• Amount of rent received
• Passport
• Overseas or Indian Bank Statements

Also, the minimum fund has to be remitted to India either as forex remittance and transfer from existing NRE account.

Further, NRIs (Non-Resident Indians) are also required to file their income tax returns for income accruing or arising in India.

• If any income accruing in India is through capital gains, rent, interest or dividend, one needs to file return without considering the threshold limit. In this one can claim deductions too.
• If income earned is less than the exemption limit and TDS has been deducted for the same, then in order to claim refund of the same one need to file return. Filing of income tax return is also compulsory when TDS deducted is more than the tax payable. Thus to claim that excess of TDS deducted over tax liability NRIs required to file their income tax refund.

For FY 2011-12, an NRI (male, who is below 60 years) whose income exceeds 1.8 lakhs and a person above 60 years who earns more than 2.5 lakhs should file returns in India. In order to avoid penalty and interest NRI should file their return till 31^st July 2012.