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NRE & NRO Accounts
Non-Resident Indians (NRIs) often have earnings from both abroad as well as in the home country. It obviously becomes difficult to manage the finances, especially when it involves two different currencies. The biggest problems faced by NRIs are tracking the bank accounts, transfer of funds to home country and repatriation of money. Non-Resident External (NRE) & Non-Resident Ordinary (NRO) accounts are the solutions to this problem.
Let’s take it further to understand how exactly these accounts will help you.
What’s The Need For NRE & NRO Accounts?
As per the Foreign Exchange Management Act (FEMA), an NRI cannot have a savings account in their name in any banks in the country. It is mandatory for NRIs to get their accounts converted to either an NRE or an NRO account as their residential status changes. Therefore, continuing with your old saving account will lead to penalties.
To easily transfer your money to India at any time and avoid any penalty, it is thus necessary for an NRI to open an NRE or NRO account. This will also help you to retain money earned in India from any assets/properties held in the home country. So, it clearly simplifies the process of transfer of funds and retaining the earnings in your home country.
What Is An NRE Account?
Non-Resident External (NRE) account is an account in the name of NRI opened in India to transfer foreign earnings to India. You can only deposit foreign currency in the NRE account which gets converted to the Indian currency that is Rupees at the time of deposit. Thus, from NRE account you can easily withdraw in Rupees.
NRE accounts are exempt from the tax. So, neither the balance nor the interest earned on these accounts is taxable in India. Further, you can transfer the principal amount as well as the interest earned thereon to your foreign account whenever required.
What Is An NRO Account?
Non-Resident Ordinary (NRO) account is an account in the name of the NRI opened in an Indian bank. Basically, it is an account of NRI to manage the income earned in India. You can deposit foreign currency as well as Indian currency in this account. So, from NRO account also you can easily withdraw in Indian currency Rupees.
In NRO accounts, the interest earned is taxable in India, thus tax is deducted at source on the same at the rate of 30%. Further, you can easily transfer the interest earned to your foreign account but repatriation of the principal amount is allowed only up to a set limit.
How Is NRE And NRO Accounts Different From One Another?
- Meaning: NRE account is an account for NRI to transfer their earnings abroad to India in foreign currency. On the other hand, NRO account is an account for NRI to transfer foreign earnings as well as manage income earned in India.
- Deposits and withdrawals: In an NRE account, only foreign currency can be deposited and you can withdraw Indian currency. Whereas in NRO account, both foreign and Indian currency can be deposited but here also you can only withdraw Indian currency.
- Taxability: NRE account is exempt from tax, so neither the balance nor interest earned thereon is liable to tax in India. On the other hand, in NRO account the interest earned on the balance deposited in the account is liable to tax.
- Repatriation: NRE account allows repatriation of money to the foreign account without any restriction. Both the foreign currency deposited and interest earned can be easily transferred to your country of residence. Whereas in NRO account, interest earned can be easily repatriated to the foreign account, but there is a certain limit on the transfer of principal amount in a financial year.
- Joint Account: NRE account can be opened by two NRIs as joint holders. Unlike an NRE account, an NRO account can be opened by an NRI and an Indian resident as joint holders.
How To Choose Between An NRE & NRO Account?
The primary basis of selection between NRE account and NRO account is your basic purpose which you would want to fulfill.
If you want to just transfer your foreign earnings to India and don’t have any source of income (like assets, properties, rentals, dividends, etc.) in India then you should prefer opening an NRE account. This will help you to easily remit foreign earnings in India, maintain savings in Indian rupees, easy withdrawal of Indian rupees and free repatriation of money to foreign account.
If you have some earnings in India and want to keep it in India itself in India rupees then, NRO account is best suitable for you. NRO account will give you the flexibility to deposit both foreign and Indian currency in the account. It is viable if you want to open a joint account with any of the residents in India. Though charges apply on the transfer of funds to the foreign currency and tax is applicable on the interest earned, but it helps you manage your funds in India smoothly.
In case your net income also includes income you earned in India and you are seeking better ways to manage it within India, opening an NRO account would be a good option. On the other hand, if you want to transfer your foreign income to India and avoid tax liabilities, you can open an NRE account.
Disclaimer : Disclaimer: The views expressed in this post are that of the author and not those of Groww