1. Obtain Chartered Accountant (CA) Certificate in Form 15CB

• Select and Consult a Chartered Accountant
• Explain your situation
• Provide documentation/explanations
• CA will verify the source of funds and whether income tax is deducted and/or paid
• On verification, CA will issue certificate in the prescribed Form 15CB

2. Submit Form 15CA online

• Access www.tin-nsdl.com
• Click “Services” and then “Form 15CA”
• Read Guidelines and familiarize with Form 15CA requirement
• Click “Form 15CA (Online Filing)” in the Forms section
• Fill up all the information as required
• Click “Proceed”
• Please review the details and then confirm to upload the form electronically
• On Confirmation, the form is electronically submitted to the Income Tax Department
• Form 15CA with an Acknowledgement No. is generated
• Print and sign the form

3. Submit documents to Authorized Dealer/Bank where NRE accountis kept

• Form 15CA
• Form 15CB
• Check (cheque) or Demand Draft for the amount
• Request letter or Form as per respective bank’s requirement
• Complete any other document, requirement or formality

4. Transfer: On verification of submitted documents, Bank will process the transfer and credit NRE account.

Timing:
Obtaining CA certificate is the most important and most time consuming step. Each CA will have his/her own procedures to verify the source(s) of funds and whether source is tax exempt and/or income tax is paid. Once you complete Step # 1 (obtain CA certificate in Form 15CB), other steps could be completed within a day and mostly the same day.

Source:
The key thing in verifying the source is determining the sources of funds. For Example, if you have a NRO FD of 3 years maturing on July 31, 2012. Source of fund is not NRO FD matured on which TDS deducted but it consists of 1. Principal when FD was made in 2009 and 2. Interest on the Principal from 2009-2012. Interest on NRO FD is considered current income and is taxable in India. While TDS could be deducted on Interest (current income), it is also important to verify the source of Principal. The CA certificate includes verification of all sources of NRO funds.

Things to consider/remember:

1. Every bank’s process and procedure for transferring funds from NRO to NRE is different so it is advisable to inquire, know and understand the procedures of the bank with which you have NRE account.
2. Filing Form 15CA is very important as the form is electronically submitted to the Income Tax department. Any error could generate an inquiry from the Income Tax department.
3. As Part B of the Form 15CA is filled based on CA Certificate issued by the Chartered Accountant in the Form 15CB, experience of a Chartered Accountant in dealing with NRIs and issuing CA certificate especially for NRO to NRE transfer should also be considered.
4. Even though RBI issued the notification allowing transfer from NRO to NRE on May 7, 2012, there is still lack of awareness among bank employees of the procedures and/or requirements. E.g. Bank employees may not know the BSR code of their own branch and could take few hours to a day to respond. Please note that BSR code of bank branch is a basic requirement (more than 3 years old) for any remittance, irrespective of the purpose and to be included in #4 of the Form 15CB whereas this notification came out less than 3 months ago. So, it is important to work with a knowledgeable bank person or have someone to liaison with the bank and/or have patience.

Difference between NRO NREÂ Accounts

1. Interest on NRE account is tax free where NRO is taxable in India: It used to be that NRE accounts paid a lower interest than NRO accounts, but recently RBI allowed banks to set up their own NRE rates, and as a result now NRE fixed deposits pay as much as a NRO fixed deposit.

The big difference is that there is no tax in India on the interest on this NRE account, so it makes much more sense to open a fixed deposit using a NRE account instead of a NRO account.

2. NRE accounts are tax free whereas NRO accounts are not: You don’t have to pay any taxes on your NRE account, but interest income on the NRO deposit is taxed in India. There was a comment the other day from a reader stating that NRO tax rates have gone down, but I can’t find confirmation of that anywhere, so if you have any information on that then please leave a comment.

3. Up to a Million Dollars is Repatriable in NRO Account: Repatriable in this context means money transferred from India to another country, and it used to be that money from a NRO account wasn’t repatriable at all.

However, RBI has made some changes and now up to a million dollars can be repatriated from a NRO account in a year. However, a friend who was trying to do this told me that it’s a bit of a hassle transferring money from NRO account when compared with a NRE account.

If you foresee the need to repatriate more than a million dollars then you should opt for a NRE account.

Conclusion on NRO NRE Comparison

A lot of NRIs need a bank account back in India because they plan to return some day in the future or they have to maintain their family still in India. So you need something back in India – either a NRO or a NRE account.

I’ve seen the rules change in such a way for these accounts that for a long time it made sense to have a NRO account but not a NRE account, and now the situation has been reversed.

When you open an account – the bank gives you an option to choose if you want to open one or both, and you should choose both at the time so that you don’t have to go through the lengthy process of submitting documents and opening a new account in case the rules change again.

NRO Account
1) NRO stands for Non-resident Ordinary.
2) It is a Rupee account i.e. denominated in Rupees.
3) It can be in the form of a current account, savings account, term deposit account or a recurring deposit account.
4) Purpose – These accounts are generally used by NRIs who earn income in India (Say from rentals from their real estate properties, pension and the like).
5) While the principal amount is completely tax free, the interest you earn on that principal is taxed at 30.9%.
6) NRO accounts are not fully repatriable. Upto $1 Million is available for repatriation after taxes in a financial year. Repatriability here refers to converting the Rupees in your NRO account into say, dollars and sending them abroad.
7) Transfer of funds from NRO to NRE account is not allowed.

Update (June 14th 2012) – Transfer of funds from NRO to NRE account is now allowed upto a maximum of $1 Million in a financial year

“The Reserve Bank allowed non-resident Indians (NRIs) to transfer funds from non-resident ordinary (NRO) account to Non-Resident External (NRE) account subject to a ceiling of $1 million in a financial year.”[1]
8) Accounts can be held either in single or as a joint account. The joint account holder need not be an NRI and can be a resident as well. Similarly, the beneficiary can be an NRI or a resident. However, it must be noted that if you return back to India and are no more an NRI then this account needs to be converted to a normal account.
For some perspective,
As of 24th April 2012 – The one year term deposit interest rates for NRO accounts in SBI are at 9.00% per annum and the savings account interest rates for NRO accounts at 4.00% per annum.

NRE Account
1) NRE stands for Non-resident External.
2) It is a Rupee account, denominated in Rupees.
3) It can be in the form of a current account, savings account, term deposit account or a recurring deposit account.
4) Purpose – These accounts are generally used by NRIs who earn income abroad and would like to remit it back to India. It is important to note that funds from local sources are not allowed to be transferred to NRE accounts unless they are repatriable in nature in the first place (i.e. eligible to be remitted abroad).
5) Both the principal amount and the interest earned on it is completely tax free.
6) NRE accounts are fully repatriable. Repatriability here, as said above, refers to converting the Rupees in your NRE account into dollars, etc and sending them back abroad.
7) Transfer of funds from NRE to NRO account is allowed.
8) Accounts can be held either in single or as a joint account. The joint account holder needs to be an NRI and cant be a resident. However, the beneficiary can be an NRI or a resident.
For some perspective,
As of 24th April 2012 – The one year term deposit interest rates for NRE accounts in SBI are at 9.00% per annum and the savings account interest rates for NRE accounts at 4.00% per annum which as you can see are similar to the NRO interest rates. Hence, from a tax saving perspective and to park funds in general, it would be wise to consider NRE accounts over NRO accounts.