NRE/NRO Accounts vs. Online Transfers

Wondering which works better when sending money from overseas – a regular savings bank account, an NRO account or an NRE account? Take a look at the key differences between these three types of money transfers.

If you’re an NRI residing overseas, then there are plenty of situations where you have to transfer money back home. Whether you’re supporting your parents financially or lending a helping hand to a sibling or friend in India, the option online money transfer often comes to your rescue.

However, while initiating a transfer, you have to consider the type of bank account of the receiver. Different accounts have varying rules, which determine how much of the amount actually reaches the receiver.

Here, in today’s post, you can find all that you need to know about money transfers from overseas to different types of bank accounts.

Sending Money from Overseas to a Resident Savings Account

One of the most often asked questions by NRIs is, “Can I send money to a savings bank account in India from overseas?” The answer depends on the account holder and his/her relationship with the NRI. For instance, if you transfer money to your parents, spouse, sibling or other direct relatives, then the amount is not taxable. It’s considered as a gift and is free from taxation.

However, if you initiate an online transfer to the account of another person who isn’t related to you, say your friend, and then the receiver has to pay tax on the amount received.

NRIs are not eligible to hold regular savings account in India. This is where NRE/NRO accounts come into the picture.

Sending Money from Overseas to an NRO Account

When you become an NRI, your resident savings account gets converted into an NRO account. You can now transfer money to this account using online transfers, wire transfers, DD, cheques, etc. The amount you transfer to an NRO account doesn’t attract tax in India, and it’s sufficient that you pay the tax for it only in the country of your residence.

However, the interest earned from the account is taxable in India and is added to your income in the country.

Sending Money from Overseas to an NRE Account

If you’re worried about paying taxes for the amount generated in your NRO account, then you can switch to an NRE account. The interest generated in this account is tax-free. This is highly useful when you have dependents.

You can initiate an online transfer to send an amount to the NRE account of another person, say your wife or children. This way your spouse or kids don’t have to pay any taxes on the amount received since it’s considered a gift from you.

Key Takeaways

While you can send money from overseas to a regular savings account, the taxation rules on it depend on your relationship with the receiver. Additionally, if you’re looking to build your savings in India, then an NRE/NRO account is a must. While choosing between these two, consider the tax implications and pick the right type of account that suits your specific requirements.