Globalization has bolstered mutual interaction between India and other economies around the world. Indians are welcomed and valued across the globe for their exceptional talent and skill set. Gradually, NRIs form a deep connection with their home country and are interested in investing in India through multiple financial instruments. To facilitate investment by NRIs, the Indian government has provided various options. The most prominent ones are NRE and NRO bank accounts.
What are NRE and NRO accounts?
The financial system is quite different for those who live in India than those living overseas but contributing to the economy. An Indian living in a foreign country cannot open a normal S/B, FD, and RD account and needs to open an NRE (Non-Resident External) account. An NRE or Non-Resident External account can hold the money received in foreign currency in rupee denomination. Fund conversion into Indian currency is possible in NRE accounts at the time of deposit. You can deposit cash in any currency and withdraw it in Indian rupees since NRE accounts have conversion facilities.
Based on the account holder’s specifications, this online NRI account in India can be opened in different formats. You may open an NRE account for savings, current, RD, or a fixed deposit. In the NRE account, depositing money earned in India is not permissible as it would lead to a tax-free transfer of funds outside the country.
NRO accounts are established to counter the situation. The ordinary non-resident account or the NRO account is instrumental in restraining overseas transfer of income earned in India, such as dividends, rental income, pension, etc.
Difference between NRE and NRO accounts
|NRE account||NRO account|
|Used for transferring money from foreign accounts to be spent/ saved in India.||This NRI bank account is helpful to save money earned through various means in India.|
|Suitable for those with only overseas income.||Suitable for those with dual-income from overseas and India.|
|It is helpful for depositing funds in any currency.||Used to manage funds sourced from Indian currency only.|
|NRE accounts are exempt from tax.||NRO accounts are subject to tax at 30% as per IT act 1961.|
|In the case of NRE accounts, both principal and interest amounts can be repatriated to a foreign account.||With NRO accounts, one can repatriate the whole interest amount while there is a limit of USD 1 million on the principal amount in a financial year.|
|A joint account is possible only with another NRI.||A joint account is possible with Indian citizens as well.|
|Currency fluctuations can have a negative effect during the withdrawal period if the foreign currency is falling against the Indian rupee.||Since the account is of Indian currency, there is no risk of currency fluctuations.|
Both NRI bank accounts are beneficial to the ex-pats in their own way. While NRE can help you maintain tax-free deposits, NRO accounts to assist in local investments and money transfers without any currency fluctuation risk. I hope you like this article and clear your all doughts.