Case AQ - Understanding NRE , NRO Accounts

Case AQ - Understanding NRE , NRO Accounts 



 


Posted by - Haarish Maadan


Hi Amlan,



I am recently moved to UAE and already stayed more than 182 days here. SO technically my status is NRE.

I am holding NRE and NRO account as well. I have couple of questions to ask

1. Is it OK that my existing saving bank account continue AS IS and I can use it for my Indian transactions (bill payments/investments etc.) ? or I have to inform my banker that my resident status changed to 'External'? 

Note: My saving bank account and NRE/NRO account are in separate banks.

2. I do have a PPF account, Is it OK that I continue to deposit sum in my PPF account while my status is NRE?

Please share your expert advice.

Best Regards,
Harish Madaan

Solution - By Amlan Dutta 

Lets understand a few things first ....the status( tax residential status ) of a person can never be a account type ...residential status can only be resident / non resident / resident but not ordinary resident .....

Like you cannot say that your status is a savings account , likewise you cannot say that your status is a NRE( non residential external rupee account )

What you meant to say was that you are because of your stay outside qualified to be a non residential Indian ( NRI ) and as a virtue of which you can hold NRE ( Non residential external rupee ) and NRO (Non residential ordinary rupee ) accounts 

Like a resident indian can open accounts of certain type i.e savings , current etc etc ..likewise a NRI ( non residential indian) can also open accounts of certain type only i.e NRE,NRO , EEFC etc etc 

With this background , lets now attempt to answer the questions you have raised 

Question - 1. Is it OK that my existing saving bank account continue AS IS and I can use it for my Indian transactions (bill payments/investments etc.) ? or I have to inform my banker that my resident status changed to 'External'?

Solution - You have to inform the bank about the change in your residential status ..all your savings and other resident accounts will be redesignated as NRO ( ordinary Rs account for non resident )

Basically , you have to understand that the savings , etc accounts are accounts for resident 
Since you are no longer a resident and have become a Non resident by virtue of either IT ACT/FEMA , you are now entitled to non resident accounts which are either NRE , NRO , EEFC etc 

Whether you have savings and NRE/NRO accounts in separate banks is insignificant ....inform the savings bank of your non resident status at the latest and they will redesignate the savings account as NRO (Non resident ordinary rupee account)

(NRE interest is tax exempt in india whereas NRO interest is fully taxable in india ...so given a choice , always open a NRE account and not a NRO account though interest rates of NRO are slightly higher than NRE ) 

Question - 2. I do have a PPF account, Is it OK that I continue to deposit sum in my PPF account while my status is NRE?

Solution - Yes , you can 
Note , NRI cannot open a new PPF account , but they can continue to maintain PPF accounts which were opened when they were resident 
This is as per new circular MOF(DEA) GSR No 585 (E) Dated 27.03.2005

Note that NRI's are not allowed to extend PPF on maturity ...
You will have to withdraw it 

(PPF interest is tax free in india but taxable in USA