So you are an NRI and similar to many NRIs you are also having NRE/NRO account,
In this article we will discuss about taxability of Interest earned on money kept in such accounts and basic difference between NRE/NRO Account.
On first note let’s discuss about basic meaning of accounts:
Non-Resident Rupee (NRE) Account
The NRE account is an Indian Rupee denominated account.
Account holder can deposit only non Rupee currency in account which automatically gets converted in Rupee at the time of deposit as per prevailing rate.
Any interest earned in this account shall not be taxable in India.
Non-Resident Ordinary Rupee (NRO) Account
Similar to NRE account this account can also be opened and operated by NRIs, only difference is that this account is held to maintain the income earned by NRIs in India... i.e. NRI can deposit money earned in India in Rupee denominated currency.
Any interest earned in this account will be governed by Indian Income Tax act and shall be subject to Tax Deduction at Source (TDS).
Taxability of Interest
Neither the balance, nor the interest earned on NRE accounts is taxable.
The interest earned on an NRO account is however taxable at 30% according to the Income Tax Act 1961.
The principle amount in an NRE account, and the interest accumulated thereon is open to repatriation.
Accordingly, the withholding tax rates for interest earned on NRO savings bank account and Deposits will be as under:
An NRE account is tax-free (no income tax, wealth tax or gift tax) in India. On the other hand, the interest earned in NRO account and credit balances are subject to respective income tax bracket. They are also subject to applicable wealth and gift tax.
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