Many students cherish their dream to study abroad owing to the quality of education and their wider acceptance for global jobs and skills. However, education and degree courses in foreign colleges and universities are often costly due to hefty education fees and a higher cost of living. Further, pursuant to recent changes in the tax laws, Tax collected at source (TCS) on sending money outside India has added to the costs of the outward remittance. This is even when such TCS may be allowed as a tax credit in Income Tax Returns and is not an expense per se. However, having an NRI account in India helps Indian students abroad to manage their finances due to the following primary reasons easily:
- Operational Convenience – Students may require initial financial support from their parents due to the high cost of living generally in foreign countries. However, sending the funds overseas may be tricky and require additional procedural compliances for confirming the remittance purposes. However, having an NRI account in India provides them with operational convenience, as parents may fund the NRI bank account in India. Such account balance can thereafter be transferred to a foreign bank account without TCS collection and less documentation.
- Lower Procedural Compliances for Self-Transfer – This is the primary benefit of having an NRI account in India and an overseas bank account. When one needs to transfer funds outside India, one can use their NRI account in India for seamless transfer to their foreign account. Since the remitter and beneficiary are the same, procedural compliance is less in this regard, as it is an ‘own account transfer’.
- No TCS – As per the current tax laws, the remitter bank must collect tax at source while making overseas remittances exceeding Rs. 7 lakh @ 5% TCS and for overseas remittances funded by education loan @ 0.5% TCS. However, when it is a transfer from an NRE/ NRO account to a foreign bank account of the account holder, such TCS is not applicable. As such, the implicit cost of an additional 5% can be prudently managed at the transaction.
Indian students abroad, if staying predominantly outside India during the year, will be classified as NRIs and thus can open NRI bank accounts in India, including NRE and NRO account. NRE accounts are more useful when the funds must be transferred from outside India, as such accounts do not accept any rupee credits. However, Indian students abroad may not have such banking needs at the inception of their studies, and thus, NRE accounts may not be suitable for them. Instead, NRO accounts may be helpful to them, as such accounts allow fund transfers in Indian rupees, which parents and relatives may do. While there are specified limits to transfer funds abroad from NRO accounts, the current limit of USD 1 million per year is a reasonable amount. At the prevailing exchange rate of USD 75/INR, the INR equivalent of such limit is Rs. 7.5 crores. With the above operational flexibilities, Indian students abroad may consider opening an NRI bank account in India, preferably an NRO account considering the banking and transaction requirements.
The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules, as tax benefits are subject to changes due to change in tax laws.