NRI (Non Resident Indians) due to various reasons want to maintain account in India in Indian Rupee denomination. This could be because he/she wants to repatriate (transfer) foreign earnings to India or want to keep income earned in India in India.
There are two options available for them:
- NRO Account (Non–Resident Ordinary)
- NRE Account (Non-Resident External)
We discuss the difference and similarity between NRE & NRO accounts, who can open these accounts and how it should be chosen?
Why NRIs need NRO or NRE Account?
The first question is why NRIs (who was resident Indian) cannot continue with the regular savings account they had in India before becoming NRI?
This is because as per FEMA regulations it’s illegal to have regular savings account in India for NRIs. So as soon as you become NRI you have two type of savings account to choose from – NRE or NRO or both.
You can easily convert your regular savings account to NRO account and manage your existing investment like demat account, mutual funds etc through it. You may need to submit some more documents depending on the country of your residence.
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- If a person shifts to Nepal or Bhutan he can still carry on with his/her regular saving account.
- Individual/entities of Pakistan and Bangladesh shall requires prior approval of the Reserve Bank of India.
NRE & NRO Accounts – Similarity
Following are the similarities between NRE & NRO Account:
1. Both NRE & NRO accounts can be either Savings, Current Account or Fixed Deposit
2. Both the accounts are Indian Rupee Accounts
Also Read: 21 Hidden Charges in Saving Bank Account
NRE Vs NRO Accounts – How are they different?
Following are the differences between NRE & NRO Account:
1. Repatriation (Transfer money between Indian and Foreign Bank Account):
NRE accounts are freely repatriable which means both principal and interest earned can easily be transferred from NRE account to foreign currency without any restriction.
In case of NRO accounts, only amount up to one Million USD (US Dollars) can be repatriated in a financial year. This too involves paperwork and an undertaking along with a certificate from Charted Accountant.
2. What Funds can be deposited?
You can deposit funds from overseas income (in foreign currency) in both NRE & NRO accounts. The foreign currency in converted to Indian rupee while depositing. However all incomes originating in India (such as salary, rent, pension, dividends etc.) for NRI/PIO/OCI has to be necessarily deposited in NRO accounts only.
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The interest earned on NRE account is Tax FREE in India. The interest earned on NRO accounts is taxable as per the applicable income tax slab. Also TDS of 30.90% is deducted on interest earned on NRO accounts. The TDS rate is 33.99% if the interest amount exceeds Rs 10 Lakhs. However, TDS rates are lower for accounts of NRIs from countries having Double Taxation Avoidance Agreement (DTAA) with India.
4. Transfer of Funds from NRE to NRO & Vice Versa
You can transfer funds from NRE account to another NRE account or to NRO account. You can also transfer fund from one NRO account to another. However transferring funds from NRO account to NRE account requires some documentation.
NRE Vs NRO Account – Summary
Also Read: Best NRE Fixed Deposit Interest Rates
|Particulars||NRE (Non-Resident External)||NRO (Non–Resident Ordinary)|
|Who can Open Account?||NRIs/PIOs/OCIs||Any person resident outside India|
|When can one open Account?||After becoming NRI||While leaving India (even before becoming NRI)|
|Deposit Allowed||Only overseas income in foreign currency||Income originating in India and overseas income|
|Joint Account||In the names of two or more NRIs. With a resident close relative on ‘former or survivor basis’||In the names of two or more NRIs or Resident Indian|
|Repatriation||Freely repatriable||Repatriated up to USD 1 Million in a financial Year with some restictions|
|Transfer-ability of Funds||NRE to other NRE & NRO accounts||NRO to NRO account only. NRO to NRE accounts requires documentation.|
|Tax on Interest||No Tax in India||Taxable as per Income Tax Slab|
|TDS on Interest||No TDS||TDS @ 30.9%|
When NRE Account suits you?
NRE account suits you if you want to keep your overseas earning in Indian rupee for payments/investments in India and have an option to freely repatriate the same to your foreign account as required. This can be a good investment option for NRIs as the interest earned is tax free in India.
When NRO Account suits you?
NRO Account is suited for NRIs who have income like salary, rent etc originating in India. NRO account is also helpful if you want to have joint account with your close relatives (like your parents, siblings) who are resident Indians.
1 thought on “NRE Vs NRO Accounts for NRIs”
As per CBDT notification, NO 93/2015 dated 16th December 2015 effective from 01.04.2016 FORM 15CA and or 15CB is not required for transfer of fund for 33 specified purposes from NRO to NRE Account. However, banks are asking for FORM 15CA and 15CB. What is the correct position? How should I proceed to transfer the balance from my NRO to NRE account?