Know the difference between NRE and NRO account

Non-Resident Indians faces many difficulties managing income earned in India and abroad. NRIs also find it difficult to track their bank accounts in the different country and also when trying to repatriate money to their home account. There are two options available for NRI’s may benefit from having two different types of bank accounts in India, an NRE (Non-Resident External) account and an NRO (Non-Resident Ordinary) account. Both NRE and NRO accounts may be opened in the form of current, saving, recurring, fixed deposit accounts, and other banking needs both may help more easily to manage earned incomes in foreign and Indian.

Non-Resident External Account (NRE)

The NRE account is an Indian Rupee denominated account. It is bank account in which the NRI can deposit the income, is deemed to be earned outside India. IN this account the Indian Rupees cannot be deposited only foreign currency can be deposited in to the account which can be converted into Indian Rupee at the time of deposit. There is no upper limit of transaction amount in NRE account. The interest earned on the money at the end of quarter is not taxable. However, the NRI can also send his remittances from abroad into this account. Transferring fund from the abroad to this account is free and funds can be transferred from an NRE account to an NRO / NRE / Resident account.This account can be opened jointly by two NRI’s but not with a resident Indian.

Any Indian citizen as a power of attorney holder cannot open an NRE account on behalf of an NRI. But the Indian citizen as a power of attorney holder can make local, rupee payments on behalf of the NRI.In case any of NRI holding an NRE account returns to India and becomes a resident of India, the NRE account is converted into a regular account.

Non Resident Ordinary Rupee Account (NRO)

The NRO account is a current or Savings account held in India for the NRIs to manage their income mainly generated in India from an Indian source.In this account interest is freely repatriable but the principal is not freely repatriable, it can be repatriated within the set limit.Such earnings could be from pensions, rent of the house, stock dividend, etc. So that it is a good way for account holders to manage & deposit their accumulated funds. In NRO account, both the Indian and foreign currency can be deposited. When you deposit the foreign currency into the NRO account it will automatically converted into Indian rupees. An NRO account can be opened jointly with another NRI as well as Indian citizen (close relatives). In this account money can be transferred from an NRO account to an NRO / Resident account. The interest earned on the moneyis taxable as per the slab rate. Any Indian citizen as a power of attorney holder cannot open an NRO account on behalf of an NRI. But the Indian citizen as a power of attorney holder can make local, rupee payments on behalf of the NRI.In case any of  NRI holding an NRO account returns to India and becomes a resident of India, the NRO account is converted into a regular account.

As per the FEMA’s guidelines (Foreign Exchange Management Act it is illegal for NRIs to have saving accounts in their name in India. It is compulsory that NRI convert all their present savings to an NRE/NRO. Opening an NRE or NRO account is afeasible option for Non Resident Indians. It can help NRIs to send the money they earned to India anytime when they want and they can also retain their money from India in their home country itself.

Difference between NRE and NRO accounts:

  • Repatriation: Repatriation is a process of briningor sending money back to the foreign country. The one can easily repatriate funds from an NRE account including the interest earned in that account. However, RBI has limited some restrictions on NRO accounts.
  • Tax Laws: NRE accounts are non taxable. TheInterest earned from NRE accounts is also exempt from taxes. But NRO accounts are taxable as per Indian Income tax laws.In this account interest is freely repatriable but the principal is not freely repatriable, it can be repatriated within the set limit
  • Deposit of Funds: The one can deposit funds from a foreign country in both NRE and NRO accounts, but money originating from India can only be deposited in an NRO account such money cannot be deposited in an NRE account.
  • Transfer: An NRE account allowstransferringmoney to another NRE account as well as to an NRO account. But in the NRO account the funds only transfer from an NRO to another NRO account, the funds cannot transfer from an NRO account to an NRE account.
  • Joint Accounts: Two NRIs can open jointly NRE account or an NRO account. However, the NRI cannot open an NRE joint account with a resident of India. On other hand the one can open an NRO account jointly with another NRI or a resident Indian.
  • Motive or Purpose: An NRE/NRO account may help more easily to manage earned incomes in foreign and Indian.

Read More: NRO Account – NRI (sbi.co.in)