Under the Foreign Exchange Management Act (FEMA), when an Indian seafarer becomes an NRI by virtue of foreign employment, maintaining standard resident savings accounts is prohibited. You must operate NRE and NRO accounts.
Non-Resident External (NRE) Account
An NRE account is denominated in Indian Rupees but holds funds remitted from overseas in foreign currency. Key highlights include:
- Interest earned is 100% tax-free in India under Section 10(4)(ii).
- Principal and interest are freely repatriable back overseas without any dollar limits.
- Cannot deposit domestic Indian income (rent, local gifts, Indian capital gains) into an NRE account.
Non-Resident Ordinary (NRO) Account
An NRO account is designed to manage domestic income earned within India. Use an NRO account for:
- Collecting rental income from Indian properties.
- Receiving Indian mutual fund and stock market dividends.
- Interest earned on NRO is taxable in India and subject to 30% TDS under Section 195.