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I am living abroad for the past three years on a student visa, and therefore fall in the 'NRI' category. I have a NRE account where I had sent some funds from abroad.

Lately, I have been thinking to transfer this money to my savings account in another bank in India. Further, I want to invest this money in a business which involves bank account linking, transferring and receiving money (in Indian currency only and where I can not link my NRE account).

I understand the following: I can transfer money from my NRE account to my savings account, NRE account is tax free and savings bank account is taxable.

If I earn some profit on this business and it is taxable, I can file the tax return.

What I want to confirm is whether this process of transferring money from my NRE to my savings account and using it for business is legally 'ok'?

Somebody got me worried about this being in violation of FEMA rules.

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have been thinking to transfer this money to my savings account in another bank in India.

As per regulation you can't have ordinary savings account. Please convert this to NRO savings account.

I can transfer money from my NRE account to my savings account, NRE account is tax free and savings bank account is taxable.

Any interest in NRO account is taxable. All credits in NRO accounts are scrutinized. Credits from NRE account are not taxable. However if there are any income that is generated; it is taxable.

If I earn some profit on this business and it is taxable, I can file the tax return.

This is fine. It would be a good practice to keep filing NIL returns for the NRO accounts even if you are not doing anything.

What I want to confirm is whether this process of transferring money from my NRE to my savings account and using it for business is legally 'ok'?

Transferring money is fine. There is no restriction. If you are doing some business, then please consult a CA. There are some approvals required. If you are investing in stocks / shares you will have to open relevant NRI Demat / trading accounts. Similarly buying a house is also fine.

Please note that money in NRO can't be freely repatriated. There is a limit of USD 1 million per year.

  • India sure does seem to have a complicated set of bank accounts!! – RonJohn Feb 20 '18 at 8:50
  • @RonJohn Ya it is when one is Non Resident. It allows better segregation of funds, reporting and management. – Dheer Feb 20 '18 at 9:01
  • Because resident and nonresident interest and dividends are taxed differently? – RonJohn Feb 20 '18 at 9:04
  • @RonJohn Yes. But more complicated. A non resident needs to open NRE [Non Resident External] Account. All Bank interest from this is tax free. Any investment from here can be repatriated easily. Capital assets purchased from here can be repatriated to the extent of funding. Dividends are anyways tax free for everyone and Dividend Distribution tax is paid by company. Existing savings account is designated / changed as Non Resident Ordinary. All interest here is taxable. The categorization allows Govt to know the flight risk of the funds here. – Dheer Feb 20 '18 at 9:09
  • "allows Govt to know the flight risk of the funds here." Ah... – RonJohn Feb 20 '18 at 9:17

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