NRI Account Rules in India: Banking, Remittances & Taxation Explained

Individuals of Indian origin who live outside India for employment, education, or personal reasons are treated as non-residents under Indian law. A person is classified as non-resident if they stay outside India for more than 182 days in a financial year or leave the country with the intention of settling abroad for an indefinite period.

Understanding NRI account rules is important because financial and banking requirements of overseas Indians differ from resident Indians. To manage these differences, the Reserve Bank of India (RBI) has established specific regulations covering banking, remittances, and taxation as per the RBI guidelines on NRI accounts.

Banking Options Available to Overseas Indians

Individuals residing abroad are permitted to open designated bank accounts in India for managing income, savings, and investments. These accounts are governed by RBI regulations and include:

• Non-Resident External (NRE) Accounts

• Non-Resident Ordinary (NRO) Accounts

• Foreign Currency Non-Resident (FCNR) Accounts

Each account type serves a distinct purpose and operates under different repatriation and tax conditions.

Rules Governing NRE Accounts

An NRE account is used to manage income earned outside India and is maintained in Indian Rupees. Funds held in this account, including interest, are freely repatriable.

Permitted transactions include:

• Transfers to accounts held in the account holder’s name in India

• Repatriation of funds to overseas bank accounts

• Investments in India, subject to RBI guidelines

• Donations to charitable organisations in India

These accounts can be jointly held with another non-resident.

Regulations Applicable to NRO Accounts

NRO accounts are designed for managing income earned within India, such as rent, dividends, pensions, or capital gains. Funds are maintained in Indian Rupees and are subject to repatriation limits.

Permitted uses include:

• Local payments such as bills, rent, and taxes

• Investments permitted under RBI norms

• Donations to charitable institutions

• Transfers to self-held accounts in India

Repatriation from these accounts is restricted and requires regulatory compliance.

FCNR Account Guidelines

FCNR accounts are term deposit accounts maintained in foreign currency. These deposits protect account holders from exchange rate fluctuations and allow full repatriation in the same currency.

Permitted activities include:

• Repatriation of principal and interest without conversion

• Investments in India as permitted by RBI

Difference Between NRE and NRO Accounts

Purpose:
NRE accounts manage overseas income, while NRO accounts handle income generated in India.

Repatriation:
Funds in NRE accounts are freely repatriable. Transfers from NRO accounts are restricted and regulated.

Tax Treatment:
Interest on NRE accounts is exempt from Indian tax, whereas interest earned on NRO accounts is taxable.

Currency:
Both accounts are maintained in Indian Rupees, but the source of funds differs.

Joint Holding:
NRE accounts can be held jointly with another non-resident, while NRO accounts allow joint holding with a resident Indian as well.

Taxation Framework for Overseas Indians

Tax liability depends on residential status as defined under Section 6 of the Income-tax Act. An individual is treated as a resident if they:

• Stay in India for 182 days or more during the previous year, or

• Stay for 60 days in the previous year and 365 days in the four preceding years

Certain exceptions apply to Indian citizens visiting India or individuals earning high income but not liable to tax elsewhere.

Tax Implications in India

• Income earned in India: Taxable

• Income earned abroad: Not taxable

• TDS: Higher rates apply compared to residents

• DTAA: Relief available to avoid double taxation

• Return filing: Mandatory if income exceeds exemption limits or includes capital gains

These compliance requirements form an essential part of NRI account rules in India.

Is a Student Studying Abroad Treated as a Non-Resident?

A student pursuing education outside India is generally classified as non-resident if their stay abroad exceeds the prescribed limits under the Income-tax Act. Residential status is determined solely by physical presence in India during the financial year.

Related Reading

Understanding the distinction between non-resident and person of Indian origin (PIO) status helps overseas Indians comply better with banking and tax regulations.

Understanding Overseas Direct Investment (ODI) and Latest RBI Guidelines for Indian Investors