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I am an Indian national who recently moved to UK for a job and found out that the interest rates here in UK are abysmal. The rates in India are much higher. Almost tenfold.

Can I transfer the salary I earn here in UK and open a savings account in India with that money to get a higher rate of interest? Is there a law against it?

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  • This is not an exact duplicate of your question, but it may help you more than a direct answer here would. In short, be careful about comparing interest rates between countries; differences between rates include differences in the inflation experienced in that country, as well as differences in bank risk in that country. You can't simply assume 8% INR return in India is 8x better than a 1% GBP return in the UK. – Grade 'Eh' Bacon Jul 19 '17 at 16:47
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Citizens of India who are not residents to India (have NRI status) are not entitled to have ordinary savings accounts in India. If you have such accounts (e.g. left them behind to support your family while you are abroad), they need to be converted to NRO (NonResident Ordinary) accounts as soon as possible. Your bank will have forms for completion of this process. Any interest that these accounts earn will be taxable income to you in India, and possibly in the U.K. too, though tax treaties (or Double Taxation Avoidance Agreements) generally allow you to claim credit for taxes paid to other countries.

Now, with regard to your question, NRIs are entitled to make deposits into NRO accounts as well as NRE (NonResident External) accounts. The differences are that

  • money deposited into an NRE account, though converted to Indian Rupees, can be converted back very easily to foreign currency if need be. However, the re-conversion is at the exchange rate then in effect, and you may well lose that 10% interest earned because of a change in exchange rate. Devaluation of the Indian Rupee as occurred several times in the past 70 years. Once upon a time, it was essentially impossible to take money in an NRO account and convert it to foreign currency, but under the new recently introduced schemes, money in an NRO account can also be converted to foreign currencies, but it needs certification by a CA, and various forms to be filled out, and thus is more hassle.

  • interest earned by the money in an NRE account is not taxable income in India, but is taxable income in the U.K.

  • There is no taxable event (neither in U.K. nor in India) when you change an ordinary savings account held in India into an NRO account, or when you deposit money from abroad into an NRE or NRO account in an Indian bank. What is taxable is the interest that you receive from the Indian bank. In the case of an NRO account, what is deposited into your NRO account is the interest earned less the (Indian) income tax (usually 20%) deducted at the source (TDS) and sent to the Income Tax Authority on your behalf. In the case of an NRE account, the full amount of interest earned is deposited into the NRE account -- no TDS whatsoever. It is your responsibility to declare these amounts to the U.K. income tax authority (HM Revenue?) and pay any taxes due.

Finally, you say that you recently moved to the U.K. for a job. If this is a temporary job and you might be back in India very soon, all the above might not be applicable to you since you would not be classified as an NRI at all.

  • Thanks a ton. That was a very informative answer. My job in UK is more permanent so I assume I qualify as NRI. What happens if I transfer the money to a family members account and that account gets the interest? If this is too broad a question and I should create a new question for it, kindly let me know. – Paagalpan Jul 19 '17 at 18:58
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    "What happens if I transfer the money to a family members account and that account gets the interest?" Short answer: Don't do this. See this answer for what happens if the family member is a close relative. But in general, tax evasion schemes like yours are typical Indian paagalpan.... – Dilip Sarwate Jul 19 '17 at 22:18
  • Thanks. One last query. When you say money in NRE is taxable in UK, does it mean that my savings NRE account jn India wil deduct tax and send it to the UK? :O – Paagalpan Jul 20 '17 at 10:47
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    I never said that the money in the NRE account, or NRO account, for that matter, (meaning the principal amount that you deposit) is taxable in UK. It is the interest that these accounts earn that is taxable income. For NRO accounts, the amount that is deposited in your account is whatever is left after Indian income tax has been deducted from the interest that the bank is paying you (TDS). For NRE accounts, the full amount of interest is deposited into your account (no TDS). It is your responsibility to declare these interest amounts on your U.K. tax return and pay the U.K. tax due. – Dilip Sarwate Jul 20 '17 at 14:31
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    To follow on to @DilipSarwate's comment - to declare this interest for UK tax, you would need to register for Self-Assessment which will complicate your tax affairs in the UK considerably. You will also likely need an accountant to help you file your Self-Assessment return. – toadflakz Jul 20 '17 at 14:51

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