What are tax implications in NRE/NRO Account

Question

I am a service holder having Indian nationality and residing in Finland for more than 14 months. I do not have any income such as from rent etc in India.

I have couple of bank accounts (normal savings account) in India which operates in INR (Indian Currency).

Here is the issue I am facing.

I want to purchase a property in India for which I have already paid the booking amount. Now, I have to pay (20%-booking amount)as an property allotment amount as per agreement to the developer. Balance 80% need to be arranged through Home loan from any Indian Bank.

I have not opened any NRE/NRO account before coming to Finland. I have transferred the allotment money from Finland to one of my existing savings account in India to pay to the developer. However, the Bank from which I wish to take the home loan have said that I need to open NRE/NRO account in future, otherwise they can't process my home loan request.

Therefore, I have decided to open a NRE account in India in one of my existing Bank. As understood, the existing saving account will be converted into NRO account and this account will then attract tax (approx 30.9%) on the income earned.

I have Offshore bank account which operates in Euro and provides International Wire transfer service via their Internet based site/portal. So I can transfer funds in NRE account.

Now My question is:

(i) Shall I transfer funds from abroad to both NRE and NRO account or I can transfer only to NRE account in India?

(ii) I am a regular tax payer in abroad. The Funds which i'll transfer in future will attract any additional tax in India?

(iii) Few Mutual Fund SIPs (monthly basis) are linked with my existing saving account in india. Do these SIPs will stop when the savings account will turn into NRO account? Shall I need to submit any documents for KYC compliance? If yes, to whom I should submit these? is there any possibility to submit it Online?

(iv) Couple of FDs are also opened online and linked with this existing saving account. Do the maturity amount(s) subject to TDS or any tax implication such as 30.9% as this account will be turned into NRO account till that time and NRO account attracts this higher tax percentage.

(iv) Which account (NRE/NRO) is better for paying EMIs for Home Loan, SIPs of Mutual Funds, utility bills in India, transfer money to relative's account etc.

(v) Is there any charge to transfer fund from NRE to NRO account if both account maintain in same Bank same branch.

(vi) Which Bank account's (NRE/NRO) debit/ATM card should be used in Abroad in case of emergency.

(vii) Do my other savings accounts, maintained in different Banks, also need to be converted into NRO account? If yes, how can it be done from Abroad?

I have tried asking local banks as well as several customer cares of different Banks in India, but didn't get any suitable answer.

Therefore, shall appreciate valuable feedback as it will help me a lot.

Best Regards, Sudipta

Answer 1

I have not opened any NRE/NRO account before coming to Finland.

This is in violation of Foreign Exchange Management Act. Please get this regularized ASAP. All your savings account need to be converted to NRO.

Shall I transfer funds from abroad to both NRE and NRO account or I can transfer only to NRE account in India?

You can transfer to NRE or NRO. It is advisable to transfer into NRE as funds from here can be repatriated out of India without any paperwork. Funds from NRO account need paperwork to move out of India.

I am a regular tax payer in abroad. The Funds which i'll transfer in future will attract any additional tax in India?

As your status is Non Resident and the income is during that period, there is no tax applicable in India on this.

Few Mutual Fund SIPs (monthly basis) are linked with my existing saving account in india. Do these SIPs will stop when the savings account will turn into NRO account? Shall I need to submit any documents for KYC compliance? If yes, to whom I should submit these? is there any possibility to submit it Online?

Check your Bank / Mutual Fund company.

Couple of FDs are also opened online and linked with this existing saving account. Do the maturity amount(s) subject to TDS or any tax implication such as 30.9% as this account will be turned into NRO account till that time and NRO account attracts this higher tax percentage.

These are subject to taxes in India. This will be as per standard tax brackets.

Which account (NRE/NRO) is better for paying EMIs for Home Loan, SIPs of Mutual Funds, utility bills in India, transfer money to relative's account etc

Home Loan would be better from NRE account as if you sell the house, the EMI paid can be credited into NRE account and you can transfer this out of India without much paperwork. Same for SIP's. For other it doesn't really matter as it is an expense.

Is there any charge to transfer fund from NRE to NRO account if both account maintain in same Bank same branch.

Generally No. Check with your bank.

Which Bank account's (NRE/NRO) debit/ATM card should be used in Abroad in case of emergency.

Check with your bank. NRE funds are more easy. NRO there will be limits and reporting.

Do my other savings accounts, maintained in different Banks, also need to be converted into NRO account? If yes, how can it be done from Abroad?

Yes. ASAP. Quite a few leading banks allow you to do this if you are not present. Check you bank for guidance.