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A Comparison Between NRO, NRE and FCNR Account.
| SL | Description | NRE A/C | NRO A/C | FCNR A/C |
| 1 | When to Open | After becoming NRI | After Becoming NRI or just before it | After becoming NRI |
| 2 | Joint Account with NRI Possible? | Yes | Yes | Yes |
| 3 | Joint Account with Resident Indian Possible? | Yes (with close relatives only) | Yes | Yes (with close relatives only) |
| 4 | Currency in Savings A/c | INR | INR | USD, Euro, Pound etc |
| 5 | Current Account & Savings A/c | Yes | Yes | No |
| 6 | Fixed Deposit Possible? | Yes | Yes | Yes |
| 7 | Purpose | NRI can keep their savings they managed in a foreign country (in USD etc) in NRE a/c in INR | NRI can keep their income generated in India (like dividend, rental income, gift etc) | NRI can use FCNR to keep fixed deposits (in foreign currency) for max period of 5 years |
| 8 | Income generated in India can be kept? | No | Yes | No |
| 9 | Repatriation | Yes | No. Only interest income generated from deposits can be repatriated | Yes |
| 10 | Funds Transfer to any normal Indian Bank Account | Yes | Yes | No |
| 11 | Funds Transfer to NRO a/c | Yes | Yes | No |
| 12 | Funds Transfer to NRE a/c | Yes | Yes | Yes |
| 13 | Funds Transfer to FCNR a/c | Yes | Yes | Yes |
| 14 | Income Tax on Interest Generated on Deposits? | No | Yes | No |
| 15 | What happens when NRI comes back and settles down permanently in India? | Account gets converted to resident account | Account gets converted to resident account | Account gets converted to resident account |
| 16 | Interest Earned for 5Year Fixed Deposit in USD | NA | NA | 2.88% |
| 17 | Interest Earned for 5Year Fixed Deposit in Pound | NA | NA | 2.68% |
| 18 | Interest Earned for 5Year Fixed Deposit (in INR) | 8.50% | 8.50% | NA |
| 19 | Interest Earned on Savings A/c (in INR) | 4.00% | 4.00% | NA |
| 20 | Interest Rate Charged on Loan against deposit in NRO/NRE A/c | 0.50% over the rate paid on the relative Time Deposits offered as security. | 0.50% over the rate paid on the relative Time Deposits offered as security. | 2.25 % over prevalent Bank’s Base Rate* (12.25% p.a. currently) |
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Like US citizen or resident who owns US rental property, you need to report any foreign rental income generated by renting out your foreign-located rental property.
You need to report your foreign property rental income and expenses just like you would do with your US rental income-with a few exceptions.
You need to calculate your foreign rental income, which is rental less expenses. The expenses related to rental could be foreign mortgage interest, local foreign property taxes, repair expenses, management fee expenses, and travel expenses incurred to inspect your foreign property (if personal days are involved, you will only be able to deduct expenses related directly to the management of your foreign property).
You need to report your foreign rental income and expenses in USD. The IRS has no official exchange rate. In general, use the exchange rate prevailing (i.e., the spot rate) when you receive the property, made any capital improvements and sold the property.
The IRS’ website has more information about Foreign Currency and Currency Exchange Rates and Yearly Average Currency Exchange Rates.
If you are required to pay foreign income taxes (or capital gains taxes on a foreign rental property sale), you may be able to offset any US income taxes paid on this foreign sourced income with a Foreign Tax Credit to prevent this income being subject to double taxation.
One of the main differences is that the depreciable building portion of your cost basis in this foreign rental property must be depreciated over a 40-year recovery period. (Land cost is not depreciable.).
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This form represents "Statement of Specified Foreign Financial Assets". Then you need understand what are specified Foreign Financial Assets that attracts filing of form I8938. Refer IRS website (https://www.irs.gov/pub/irs-pdf/i8938.pdf) for form I8938 instruction. Examples of these assets include:
- Stock or securities issued by a foreign corporation;
- Stock or membership interests issued by a foreign limited liability company;
- A note, bond or debenture issued by a foreign person;
- An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap or similar agreement with a foreign counterparty;
- An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer;
- A partnership interest in a foreign partnership;
- An interest in a foreign retirement plan or deferred compensation plan;
- An interest in a foreign trust or estate;
- Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value.
Foreign real estate is not a foreign financial asset required to be reported on Form 8938. But if the Foreign real estate is held by an entity and you have interest in the entity, then your percentage of interest will be included on Form 8938.
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Taxability of income is determined based on taxable status, source of income and derivation of income. Below matrix depicts a high-level tax incidence based on taxable status.
For taxable status refer (FY2020-2021 : Non-Resident Indian Status Determination)
|
Taxable Status |
Tax incidence |
|
Resident & Ordinarily Resident |
All global income is taxable India, subject to double taxation agreement. |
|
Resident, but not Ordinarily Resident |
Income is taxable in India if income is earned and received India |
|
Non-Resident |
Income actually earned in India or deemed to be earned in India |
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Foreign real estate is not a foreign financial asset required to be reported on Form 8938, if you are the direct owner of it. So, a personal residence or a rental property outside of the United States does not need to be reported on this form.
However, if the real estate is owned by a foreign entity, such as a corporation, partnership, or trust and you have an interest in that entity, the percentage of ownership is reportable on Form 8938. The value of the real estate held by the entity is used to determining the value of the shares to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.
All of this is to say that, if you purchase foreign real estate in your name, without an entity, you do not need to include that asset on Form 8938…but be careful, there are a number of other taxable and reportable events, few are listed below.
- First, all rental income must be reported on your personal return (Form 1040 and Schedule E), regardless of the amount and regardless of whether you are required to file Form 8938. In most cases, reporting your rental property on Schedule E will create a loss, and thereby reduce your US taxes. For more information on this and taking depreciation on international real estate.
- If you open a foreign bank account to facilitate the purchase of the property or the receipt of rental income, and that account has more than $10,000 in it on any one day of the year, then you must report the bank account on US Treasury Form TD F 90-22.1, commonly referred to as the FBAR or Foreign Bank Account Report.
Refer IRS website (https://www.irs.gov/pub/irs-pdf/i8938.pdf) for form I8938 instruction.