Do You Need an NRE or an NRO account? Know the Difference First

NRE and NRO accounts can be very useful for NRIs wishing to manage their finances in India. However, NRIs should be aware of the difference between these two accounts as both have their own set of benefits.

 

Managing finances can be a nightmare for NRIs having an income source both in India and abroad. Even if you have no earnings in India, you may still find the whole process involving any banking transaction quite difficult unless you have a bank account in India.

 

However, the Foreign Exchange Management Act prohibits any NRI to maintain any type of bank account in India. Any violation of this rule can attract hefty penalties. Therefore, the moment you become an NRI, you need to close your bank accounts or convert them into an NRO account.

 

Difference Between NRE and NRO Account

 

 

Sr. No.	Factors	Non-Resident External (NRE) Account	Non-Resident Ordinary (NRO) Account
1.	Taxation	The amount parked in an NRE account and the interest earned upon it is exempt from payment of income tax.	The interest earned on the amount deposited in an NRO account is taxable, subject to the various tax deduction limits and the total annual income of the account holder.   Furthermore, funds in such accounts are also subjected to applicable wealth and gift tax.   But you can claim some tax benefits under the Double Taxation Avoidance Agreement.
2.	Use	You can park the money earned outside India in an NRE account after converting it into rupees.	The money earned in India by an NRI can be received in NRO accounts and stored in rupees.
3.	Joint Account Facility	NRIs can open an NRE account jointly with another NRI.	You can jointly hold an NRO account with another NRI or an Indian resident.
4.	Repatriation	Both principal and interest amounts in an NRE account are freely repatriable.	You can’t remit more than USD 1 million in an assessment year. However, you can repatriate the interest amount freely.   Furthermore, repatriation from NRO accounts requires an undertaking along with a certificate from a chartered accountant.
5.	Fund Transfer	Funds in an NRE account can be transferred to another NRE or NRO account.	Funds can be transferred only to an NRO account, not any NRE account.

 

 

 

Similarities Between NRE and NRO Account

 

●      Both are NRI accounts that are offered exclusively to NRIs or PIOs (Persons of Indian Origin).

 

●      Money is deposited and maintained in Indian rupees in both accounts.

 

●      Both NRE and NRO accounts can be used to open savings, fixed deposits, or current accounts.

 

●      You are required to maintain a minimum monthly balance, usually Rs 10,000, in both accounts.

 

●      Free ATM card and cheque book is provided with these accounts that can be used in India.

 

Which One Should You Choose?

 

As an NRI, you can consider opting for an NRE account to transfer your foreign income into India and avoid paying income tax on it.

 

Alternatively, an NRO account can be your best bet if you have earnings in India in the form of rental income, pension, dividend income, etc. Sometimes, an NRI can choose to maintain both NRE and NRO account depending upon his requirements.

 

While banks can offer both NRE and NRO accounts to NRIs, each of them serves distinctive purposes. Therefore, the customers need to decide which one suits their needs best. Now that you know the difference between the two, you can make your final call and begin your NRI banking journey.