Non‑Resident Indians often wonder if their overseas salary deposited in an NRE account is taxable in India. The answer depends on residential status under the Income Tax Act. If a person qualifies as a non‑resident, then salary earned abroad and credited into an NRE account is not taxable in India. Only income earned or received in India is subject to Indian tax rules.
An NRE account is rupee denominated but funded with foreign currency. The money is converted into Indian rupees for withdrawals. It helps NRIs manage overseas earnings for family expenses, investments and savings in India. Both principal and interest are freely repatriable, which means they can be transferred abroad without restriction. Interest earned in an NRE account is also exempt from Indian tax.
It is important to distinguish between NRE and NRO accounts. NRE accounts are meant for foreign income while NRO accounts can hold both Indian and foreign income. Interest in NRO accounts is taxable in India and subject to tax deduction at source. Repatriation from NRO accounts is limited to one million dollars per financial year.
Under FEMA guidelines, once a person becomes non‑resident, resident savings accounts must be converted into NRE or NRO accounts. Failure to update status may lead to compliance issues and penalties. NRIs can also open NRO accounts jointly with residents or other NRIs.
