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A non-resident Indian (NRI) is an Indian national who leaves India for employment, education, or for other reasons. This status can pose a problem when it comes time to open an NRI account in India. If you have this type of living situation, there are two options for you. The non-resident external rupee (NRE) account and the non-resident ordinary rupee (NRO) account are the accounts available to you. Both accounts have their advantages depending on your income and your plans. Here is a brief overview of both types of NRI accounts.
NRE Account
An NRE account is an Indian Rupee denominated account which is freely repairable. This NRI account can be savings, current, recurring, or fixed deposit account. The income accepted into this account is income earned outside of India. As such, the owner of this type of account cannot deposit rupees into this account. The NRE account does accept foreign currency and converts it into an Indian rupee at the time of the deposit. Interest earned on the balances within the account are free from any income tax.
NRO Account
The NRO account is a savings or current account held in India. This type of account assists NRIs to manage income earned in India. Examples include rent, dividends, or pensions from abroad. A holder of the account can make deposits and manage rupee funds through an NRO account. Any foreign currency deposited into the NRO account will convert to Indian rupees.
A Few Similarities
There are a few similarities between the NRE and NRO accounts. Here are a few:
- You can open both accounts as a savings bank or current account.
- An owner must keep an average monthly balance of 75,000 rupees in both accounts.
- The currency of operation in both accounts is the Indian rupee (INR).
The Differences
There are multiple differences between the two accounts. Here are the major ones:
Repatriation
- NRE account: You can transfer money to a foreign country without restriction and the principle and interest can be transferred.
- NRO account: You can transfer up to one million in a fiscal year after paying your taxes in India.
Taxation
- NRE account: Free from any tax.
- NRO account: There is taxation on the interest earned. You may also be responsible for wealth and gift taxes if they are applicable.
Currency limitations
- NRE account: Only deposits in a foreign currency are allowed, and withdrawal is in INR.
- NRO account: Deposits are allowed in foreign currency and INR. Withdrawal is in INR.
Deposit of INR income generated in India
- NRE account: Earnings generated in India are not allowed for deposit into NRE account.
- NRO account: You can deposit salary, dividends, rent, and other income into an NRO account.
Joint holding
- NRE account: You can only open a joint NRE account with another NRI.
- NRO account: You are permitted to have a joint account with both an NRI and resident Indians.
Fund transfers between NRE and NRO accounts
- NRE account: Transferring funds between and NRE and NRO account is straightforward and simple.
- NRO account: Transfer is possible with a limit of one million per fiscal year.
Who can open the account?
- NRE account: Only an NRI can open the account.
- NRO account: This account is accessible for an NRI or a resident Indian.
Which account should I open?
This question depends on what your plans might be and what your sources of income are. An NRE account is an ideal account for you if:
- You want to transfer your earnings for investment in India while transferring the proceedings abroad.
- You prefer to hold your earnings in INR.
- You have an interest in holding a joint account with another NRI.
The NRO account is the better choice if:
- You have earnings in India like rent, salary, dividends, and interests from deposits.
- You have no plans to live abroad.
- You are interested in a joint account with a resident Indian.
If you are an NRI, you have a choice between these two options. If your total income includes income earned in India and you desire to manage it within India, an NRO account might be the option for you. If you wish to transfer foreign income to India without taxation liability, then an NRE may be a good choice.