Business & Investment

Choosing the right NRI account: NRO or NRE account

Both NREs and NROs are a type of NRI account, but they both have different purposes. This post describes the main differences between the two types of accounts that help you choose the right type of NRI account. Continue reading.

In accordance with FEMA regulations, non-resident Indians or NRIs cannot have savings accounts in India. They need to transfer their Indian bank account to their NRI account.

● Hold overseas earnings in Indian currency, or

● Hold Indian earnings in Indian currency

Alternatively, you can close your existing bank account and open a new NRI account from scratch.

There are two main types of NRI accounts.

1. NRE (Non-Recurring External) account

2. NRO (normal non-resident) account

Both of these accounts are rupee-denominated and can only be opened by NRI or PIO (Indian immigrants). In addition, both have two variations, a current account and a savings account.

For new or future NRIs, the choice between the two is so similar that it can be confusing. Some important differences listed below will help.

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1. The main purpose of the account

NRE bank accounts are used to deposit foreign income into Indian accounts, while NRO accounts are used to deposit income such as salaries, rents and dividends in India. Therefore, NRE bank accounts are ideal for people who: I only have foreign income and want to transfer money to a rupee-denominated account. On the other hand, NRO accounts can be used by NRIs who earn income from India while living abroad.

2. Deposit rules

Only foreign income can be deposited in your NRE bank account. However, you can use your NRO account to deposit both foreign-earned income and Indian-earned income. However, withdrawals from both accounts can only be made in INR.

3. Possibility of refund of funds

NRE accounts are fully remittable. This means that you can transfer funds (principal and interest) from this type of NRI account to your country of residence account without any restrictions.

With an NRO account, you can transfer interest earned without restrictions, but repayment of principal is limited. You can only remit after paying the applicable taxes, and the maximum remittance amount for a fiscal year is US $ 1 million.

4. Taxation rules

Both principal and interest earned on NRE Savings Accounts are tax exempt. On the other hand, the income accumulated in the NRO account is taxed at 30% plus 3% tax. In addition, interest earned in excess of Rs 10,000 in the fiscal year is also taxed.

5. Joint ownership of accounts

With an NRE account, co-ownership is only possible with another NRI. Residents of India may not be eligible to have a joint NRE account. For NRO accounts, co-holding is permitted even if one of the account holders is a resident of India.

6. Exchange risk

There is no foreign exchange risk in your NRO account unless the deposit is made in a foreign currency. On the other hand, NRE bank accounts usually have a high exchange risk because the funds are transferred to the Indian currency each time a deposit is made.

Choosing the right NRI account

As mentioned earlier, NRO accounts are for maintaining Indian earnings in India, and NRE bank accounts are for maintaining foreign earnings in Indian Rupee-denominated accounts. Therefore, the right type of account depends on the source of revenue and is rarely selected.

However, we recommend that you open both of these types of accounts as they will help you achieve two very different purposes. The most important thing is to choose the right bank to open an NRI account with a good international and domestic presence, along with an impeccable service record.

Choosing the right NRI account: NRO or NRE account Choosing the right NRI account: NRO or NRE account

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