An NRI (Non-Resident Indian) with earnings both abroad and in India often faces difficulties in managing his/her finances. They also find it challenging to track bank accounts in a different country, and even when trying to send money to their home account. NRE & NRO accounts are the answers of these problems. Read on to find more about this.
Why do we have NRE & NRO Accounts
As per the Foreign Exchange Management Act (FEMA) guidelines, an NRI cannot have a savings account in his or her name in India. You must convert all your savings (money earned abroad) to a Non-Resident External Account (NRE) or Non-Resident Ordinary (NRO) account. Therefore, continuing to use the savings account in the home country can attract hefty penalties. Opening an NRE or NRO account is, hence, a viable option for Non-Resident Indians. It can help NRIs in two ways. One, they can send their foreign earnings to India at any point. Two, they can also retain their income from India (via any assets) in the home country itself.
What is a Non-Resident Rupee (NRE) Account
The NRE account is an Indian rupee-denominated account, offering complete security. These accounts can be in the form of savings, current, recurring, or fixed deposits. The foreign currency you deposit into the account is converted to INR. You can also transfer your funds (Principal & Interest amount) to a foreign account from an NRE account without any complications and restrictions. You need to note that the amount you deposit into these accounts must be earned outside India. The international debit card enables you to transact and withdraw money 24*7. Also, mutual fund investments to become effortless and instant if you link your NRE account number to the investment account. NRE account is primarily used for carrying out business, personal banking and making investments in India.
What is a Non-Resident Ordinary Rupee (NRO) Account
An NRO account is a savings or current account held by NRIs in India to manage their income earned in India. Account-holders can deposit and manage their accumulated rupee funds without any hassle. The account allows you to receive funds in Indian or Foreign currency. You can apply for an NRO account jointly with a resident Indian or even an NRI. It is even feasible to transfer money from your current NRE account. However, the interest you earn in this account is subject to TDS (Tax Deducted at Source). Tax Deducted at Source (TDS).
How to choose between NRE & NRO Account
Difference between NRE Account NRO Account?
Repatriation
NRO accounts have limited access for repatriation. An NRO account restricts you from remitting more than USD 1 million inclusive of taxes during an assessment year. You can repatriate the interest amount freely, but the principal amount can be repatriated only within set limits. It also requires an undertaking along with a certificate from a Chartered Accountant. However, repatriation is free for NRE account holders for both the principal and the interest amount.
Tax treatment
An NRE account is tax-free (no income tax, wealth tax, or gift tax) in India. On the other hand, the interest earned in NRO accounts and credit balances is subject to respective income tax bracket. They are also subject to applicable wealth and gift tax. You can avail the reduced tax benefit under the Double Taxation Avoidance Agreement (DTAA).
Joint account holding
You can have a joint NRE account only if both the parties are NRIs. On the other hand, you can open an NRO account with another NRI or a resident Indian (a close relative) as mentioned under Section 6 of the Companies Act 1956.
How is NRE Account similar to NRO Account
Both NRE and NRO accounts are Indian rupee accounts. You can open them as savings as well as current accounts. Also, the average monthly balance you must maintain for both accounts is Rs 75,000. The following table shows the differences between the NRE and NRO accounts:
| Parameter | NRE accounts | NRO accounts |
| Deposits and Withdrawals | Can deposit in foreign currency, and withdraw in Indian currency | Can deposit in foreign as well as Indian currency, and withdraw in Indian currency |
| Transfer of fund | An NRE account allows you to transfer funds to another NRE account as well as to an NRO account | You can transfer funds from an NRO to another NRO account, but you cannot transfer funds from an NRO account to an NRE account. |
| Effect of Exchange Rate Fluctuations: | NRE accounts are subject to conversion loss and fluctuation in the value of rupee against a foreign currency | There are no risks involved in NRO accounts |
