8 NRE and NRO account mistakes every NRI should avoid
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NRE vs NRO: 8 costly mistakes NRIs should avoid
NRE and NRO accounts are designed for different purposes, but the differences are often misunderstood. From depositing money into the wrong account to overlooking tax and repatriation rules, small mistakes can create bigger financial issues. This slideshow explains the most common pitfalls to help you bank smarter as an NRI.
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Keeping your resident savings account after becoming an NRI
Many people forget to change their regular resident savings account after moving abroad. Under RBI rules, resident savings accounts should be redesignated once your residential status changes to NRI. You can then open NRE or NRO accounts, depending on your banking needs.
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Depositing Indian income into an NRE account
An NRE account is meant for income earned outside India, such as your overseas salary. Income generated in India like rent, pension, dividends or property sale proceeds should generally be credited to an NRO account instead.
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Assuming NRO account money can be freely transferred abroad
Unlike NRE accounts, NRO accounts have repatriation rules. NRIs can remit eligible funds abroad, subject to RBI regulations, documentation and applicable limits. Understanding these rules can help avoid delays.
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Ignoring tax on NRO account interest
Interest earned on NRO accounts is taxable in India and is generally subject to Tax Deducted at Source (TDS). If you qualify for relief under a Double Taxation Avoidance Agreement (DTAA), you may be able to reduce your tax liability by following the required procedures.
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Believing NRE account interest is always tax-free
Interest on NRE accounts is generally tax-free in India only while you qualify as an NRI under the applicable rules. If your residential status changes, the tax treatment may also change.
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Using the wrong account for investments
Some investments can be made through both NRE and NRO accounts, while others have specific rules. Using the correct account is important because it can affect taxation, repatriation and compliance requirements.
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Not updating your bank after returning to India
If you return to India and become a resident again, you should inform your bank. NRE and NRO accounts may need to be redesignated or converted in line with RBI regulations to reflect your new residential status.
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Assuming one account is enough for every need
Many NRIs benefit from having both an NRE and an NRO account. An NRE account is useful for managing foreign earnings, while an NRO account is designed for income earned in India. Using both appropriately can make banking, taxation and fund transfers easier.(Few images are generated using AI)