NRE vs NRO account for NRIs? What’s the difference and how to choose?

 

An NRI (Non-Resident Indian) with incomes both overseas and in India faces difficulties handling their finances. They also find it challenging to keep track of different bank accounts in other countries. Money management also becomes difficult even when they try to repatriate money to their home account. NRE and NRO account help with this. 

This article helps you understand what an NRE and NRO account is, the difference between them, and how to choose between these two types of bank accounts – NRE or NRO.

Talking about NRO and NRE accounts in deep, as per the Foreign Exchange Management Act (FEMA) guidelines, an NRI cannot have a savings account in their name in India. They must convert all their savings (money earned abroad) to a Non-Resident External Account (NRE) or Non – Resident Ordinary Account (NRO). Continuing to use the savings account can bring up hefty penalties. So, opening an NRE or NRO account is a viable option for Non – resident Indians.

These accounts are helpful to Indians in two ways:

1. NRI’s can send their foreign earnings to India.
2. They can also control their earnings from India in the home country itself.

What is a NON -RESIDENT EXTERNAL (NRE) Account?

NRE accounts are Indian rupee-denominated accounts, allowing complete security. These accounts can be in the kind of savings, current, recurring, or fixed deposits. The money deposited is converted into INR. Without any complications and restrictions, you can transfer your funds to a foreign account from an NRE account. But you must note that you must earn money outside India to deposit into these accounts. The International Debit Card allows you to transact and withdraw money 24*7. This account is used for personal banking, carrying out business, and making investments in India.

What is a NON-RESIDENT ORDINARY (NRO) Account?

 To manage their income earned in India, NRIs hold an NRO account in India. It can be a savings or current version. The account lets you receive funds in both foreign and Indian currencies. In this account, account holders can deposit and manage their accumulated rupees fund without any hassle. You can apply for a joint NRO account with an Indian or even with another NRI. It is also allowed to transfer the money from your NRE account to this account. The interest you receive in this account is subject to TDS (Tax Deducted at Source).

Difference between NRE and NRO accounts

• JOINT ACCOUNT – Joint NRE account holding can only do with another NRI. While, on the other hand, You can start an NRO account held with another NRI or with an Indian resident who is a close relative, as mentioned under section 6 of the companies act 1956.
• TAX – An NRE account is entirely tax-free – no income tax, or wealth tax or gift tax. In contrast, the interest earned in the NRO accounts and credit balance is subjected to the respective income tax bracket and applicable wealth and gift tax. You can avail of reduced tax benefits under the Double Taxation Avoidance Agreement (DTAA).
• REPATRIATION – Repatriation is free for NRE account holders for both the principal and interest amounts. On the other hand, NRO accounts have limited access to repatriation. An NRO account restricts you from remitting more than 1 million dollars, including taxes, during an assessment year. Repatriation of the interest amount can be done freely, but only within set limits can repatriate the principal amount.
• Depositing Funds in NRE and NRO account:An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; whereas, an NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. These incomes include rent, dividend, pension, interest, etc.
• Rates of Interest

Interest rates on NRE and NRO Accounts are likely to vary depending on which bank provides the service. However, most banks are currently offering interest rates on both of these very close accounts.

• Holding a bank account

Two NRIs can open an NRE Joint Account or an NRO Joint Account. HOWEVER, an NRI cannot open an NRE Joint Account with a native Indian. It is only possible if you have a combined NRO account.

• Fluctuations in the exchange rate

Exchange rates can result in significant currency losses. Keeping this in mind, NRE accounts are vulnerable to exchange rate losses: daily swings in the rupee’s or INR’s value and conversion loss. On the other hand, NRO Accounts are immune to both of these exchange rate swings.

• Transferring Money

One of the most common worries when creating an account is the transfer of funds, whether to a family member, a friend, or for any work-related purpose. As an NRE account holder, you can transfer funds to another NRO account and another NRE account. You can only send money to another NRO account if you have an NRO account. Money cannot be transferred from an NRO account to an NRE account.

• Funds Deposited / Withdrawn

One of the most notable differences between an NRE and an NRO account is the ability to deposit or withdraw money. Funds originating in India, i.e., in Indian Rupees (INR), can only be put in NRO Accounts, not NRE Accounts. Withdrawals from NRE and NRO accounts can only be made in Indian Rupees (INR).

How to decide between an NRE and NRO account?

When it comes to choosing between an NRE and NRO account, it entirely depends upon the needs of a particular person, even though there are some benefits, as mentioned above, for the NRE account. Here, I will say some of the features of both these accounts, making your decision-making easier.

          NRO ACCOUNT

• Start a joint account with an Indian Resident ( close relative )

• To deposit incomes earned in India. E.g., rents, dividends.

• Repatriation: Charges apply

• Keep India-based earnings in INR in India. 

 

          NRE ACCOUNT

• Hold a joint account with another NRI.

• Maintain savings in INR, but keep them in liquid.

•  Rupee’s savings to be freely repatriable 

• Remit your overseas earnings to India, converting them into INR 

The above writeup gives you a clear picture of both NRO and NRE accounts, their differences, and a detailed description of their features to quickly decide how to choose between the two based on your requirements. UNIMONI FINANCIAL SERVICES is already extending its hands to help you make a brilliant decision for any further assistance. Also, with the opening of the required account for the safe room of your finances. All you need to do is get in touch with us and arrange a demo call with us. Our experts would be pleased to help you!