POSTED BY July 19, 2012 11:14 pm COMMENTS (10)ON
Here’s the scenario for a typical NRI:
1. US bank accounts give a 3.5% interest. This is again taxable and you typically get 60% of the interest in hand so effectively it’s a 2.1% increase of your income (Please correct me if I’m wrong).
2. Indian banks offer 9% interest.
if using an NRO account: Factor it with taxes 30% TDS and 10% after DTAA (total 40%) or
if using an NRE account: Factor it with 40% combined state/federal tax and effectively,
either way it’s 60%(9%) which is 5.4% return.
Current inflation rates in US and India are roughly 1.7% and 10%.
On returning to India (after say 10-15 years), we can get a 70%(9%) or 6.3% interest on FDs (assuming the tax brackets remain the same) and we also transfer all our money into Indian banks.
Consider this plan which maintains a small savings account in the US which grows slowly and always slightly more than sufficient for expenses while everything else goes into an NRE account in India (which I guess has an added advantage of repatriability incase there are surprise expenses in the US). You are effectively growing your money by 5.4% and later by 6.3% after returning instead of letting it grow slowly by having more than what is needed in an american savings bank.
Can somebody point out all flaws in the above plan? I haven’t factored in inflation, I don’t see what role it has to play here although the *only* goal is to maximize what you have on returning to india.