An NRI should open an NRE / NRO bank account in India, simply because its required by law ( as NRIs are not permitted to operate regular savings accounts)

An NRE /NRO account is also required for making investments in various assets by NRIs.

Each year there are lot of Indians who leave India for better work opportunities. As per the income tax law, a person residing outside India for more than one hundred and eighty-two days during the course of the preceding financial year is classified as Non Resident Individual.

The period of stay is counted in number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income-tax Act).

There is another condition that may change the status of an individual to NRI. If a person is not in India for 60 days or more during the previous year and he/she is not in India for 365 days or more during the 4 years prior to the previous year is also classified as an NRI.

Most, if not all have left family behind whom they would like to take care of. Again, most if not all, may look to retire back in India when the time comes. All this may require an NRI to look at various investment opportunities that India offer.

All investments made by NRIs have to be in local currency, that is, the rupee. An NRI needs to first open one of the three bank accounts-non-resident external rupee (NRE) account, non-resident ordinary rupee (NRO) account or foreign currency non-resident account (FCNR)-with an Indian bank.

An NRE account is a rupee account from which money can be sent back to the country of your residence. The account can be opened with money from abroad or local funds.

An NRO account is a non-repatriable rupee account. An FCNR account is similar to the NRE account, except for the fact that the funds are held in a foreign currency.

The amount that is invested can be directly debited from an NRE/NRO account or received by inward remittances through normal banking channels.

An NRI needs to give a rupee cheque or draft from his NRE/NRO account. He can also send a rupee cheque/draft issued by an exchange house abroad drawn on its correspondent bank in India.

If the investment is made through cheques or drafts, the investor should attach with the application form a foreign inward remittance certificate (FIRC) or a letter issued by the bank confirming the source of funds.

FIRC is a proof of payment received by the individual from outside the country in a foreign currency. It is issued by the bank where you have the account to receive the funds.

Other know-your-customer documents such as Permanent Account Number and address proof are also to be submitted, just as in case of resident investors.

Taxes on interest earned

Interest earned on a NRO account, as well as on the credit balances of this account, is taxed based on the account holder’s tax bracket. However, the interest accrued on a NRE account is wholly exempted from income tax, as well as wealth tax that would otherwise be charged on the credit balances of the account. Also, cash gifts to this account do not attract taxes.


Funds can be transferred from a NRE to a NRO account, but funds transfer from a NRO to a NRE is not permissible. Once a transfer to a NRO from a NRE account has been made, the funds are considered as non-repatriation, and as such, they cannot be transferred back.

If you are an NRI interested in investing in India, get in touch with us.


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