Many of us start our careers in India and subsequently move abroad, thereby gaining the tax status of an NRI. In a nutshell, if we are outside India for more than 182 days in a financial year, we are considered as NRI for tax purposes.
A tax resident pays taxes in India on his global income whereas an NRI pays taxes in India on only those incomes that have been earned in India. Primarily such incomes consist of rent, interest and/or capital gains.
As and when we become NRI for tax purposes, it becomes important that we declare our residence status to all the stakeholders, primarily banks and MF houses. This will result in TDS deduction at the correct rates and reduce the advance tax and interest liability.
Once we declare NRI status to banks, they open an NRE and an NRO account for the NRI. These are nothing but a variation of savings accounts. An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; whereas, an NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India.
NRE accounts are exempt from tax. Neither the balance, nor the interest earned on these accounts is taxable.
The balance in NRE account can be repatriated outside India without any restriction.
