money matters for NRIs
Know Differences between NRE Account and NRO Account

NRIs need to be careful in their choice of non-resident bank accounts. Knowing difference of features in the two rupee denominated NRO (Non Resident Ordinary) and NRE (Non Resident External) accounts will help you decide on which one is best suited to your requirements.

When a resident turns non-resident his existing rupee bank account should be re-designated as NRE or NRO account. NRIs should intimate their bank about change in residential status. You can open savings account, current account, fixed deposit or recurring deposit account in both the NRE and NRO accounts. Below we mention features of NRE account and NRO account which are different.

Taxation in NRE and NRO accounts

This is an important consideration. Interest in NRE account is exempt from income tax and account balance is exempt from wealth tax.

As opposed to this interest in NRO account attracts income tax and the balance in account can attract wealth tax.

Source of funds for NRE and NRO accounts

Since NRE account is tax free you cannot deposit funds generated in India in it; such income is taxable. NRE accounts can only have funds remitted from abroad.

In NRO account you can deposit money earned in India. So if you have incomes from rent, salary and dividends to be earned in India you need an NRO account.

Repatriation from NRE and NRO accounts

Balance in your Non Resident External account can be fully transferred abroad. Funds in this account come from abroad and there are no taxes to be paid in India on such earnings for NRIs and there are no restrictions on repatriation from NRE account.

On the other hand there are restrictions on repatriation of funds from Non Resident Ordinary account. Only up to US $ 1 million can be repatriated in a year, for genuine purposes, after submission of documents for proof of source of funds, declaration of use of funds and showing applicable taxes have been paid. FEMA rules govern remittance of money abroad and sometimes banks differ on application of the rules. For repatriation more than the freely repatriable amount an application needs to be filed with RBI.

Joint NRI account

Finally in NRE account one can have joint account with another NRI of Indian origin. A resident who is a close relative can be a joint holder on 'former or survivor' basis and operate the account as Power of Attorney in NRE account.

NRO account can be held jointly with a resident or an NRI.

NRO or NRE account- which is best?

Summary of various differences discussed above are in the table below

Parameter

NRE Account

NRO Account

Tax

No income tax and wealth tax

Tax is applicable

Repatriablity

Fully repatriable

Partially repatriable for bonafide purposes

Joint ownership

Only with NRIs

Possible with residents as well

Funds source

Not arising in India

Could be arising in India

You can choose to open both NRE account NRO account since opening one in the hour of need can be time consuming. Funds in both accounts are transferable amongst each other. If you need to repatriate funds abroad or want to hold joint account with your resident spouse or relative you can deposit in NRO account.

Those who wish to have bank account in which they can remit money in other currencies can open FCNR account.


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