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Difference Between NRE Account & NRO Account
Posted on Wednesday, August 25th, 2021 | By IndusInd Bank
When you move away from home, a lot of things change, including your financial life! A change of residential status also means a change in the nature of your bank account.
According to the Foreign Exchange Management Act (FEMA), a Non-Resident Indian (NRI) cannot hold a resident savings account in India. Thankfully, you can manage your finances with the help of an NRE or an NRO account. But, what are the differences between the two, and which one is the right option for you? This guide will help you decide on the right NRI account.
Understanding NRE and NRO accounts:
NRE Accounts: What Are They?
An NRE or Non-Resident External account is an account in which the foreign earnings you deposit get converted into INR or Indian rupees. An important feature of an NRE account is that both the principal and the interest amount attract tax exemptions. Moreover, you are free to repatriate or transfer your savings to a foreign account without any restrictions.
However, do keep in mind that an NRE account is prone to exchange risk fluctuations. Meaning, even if you deposit your money, say, on 1st August 2021 and withdraw it in INR on 31st August 2021, chances are, you could be withdrawing more or less than the actual value of the initial principal. NRE accounts do not protect against currency fluctuations that may change on a daily basis.
NRo Accounts: What Are They?
An NRO or Non-Resident Ordinary account, on the other hand, allows you to receive your funds earned in India. However, you can only withdraw in Indian rupees. Plus, the up to USD 1 million kept in NRO account is repatriable per financial year or transferred into a foreign account. Meaning, the RBI has set a limit on the transfer of principal and interest amount – $1 million for one financial year after deduction of applicable taxes. Also, the interest you earn on an NRO account is subject to 30% TDS, or Tax Deducted at Source along with education cess.
NRE vs. NRO account: A Comparison
Point of Distinction:
Motive or Purpose
NRE Account: Usually opened to deposit income earned outside India
NRO Account: Usually opened to manage income earned within India. E.g., rent, pension, etc.
Funds Transfer
NRE Account: Can be freely repatriated
NRO Account: Cannot be freely repatriated. Repatriable upto USD 1 million per financial year
Taxation
NRE Account: Interest earned is tax-exempt in India
NRO Account: Interest earned is taxable at 30% TDS++
Joint Account
NRE Account: With another NRI/PIO Resident Indian close relative with “Former or survivor” mode of operation
NRO Account: With another NRI/PIO Resident Indian with “Former or survivor” mode of operation
Choosing the Right NRI Account
If you want to open a bank account to secure your overseas earnings in Indian currency without facing any tax liabilities, you should consider opening an NRE account. However, if you want to open an account to park your income earned in India, such as rent or pension, the ideal option is an NRO account.
Ready to park your foreign and Indian income in India? Start by choosing the right bank. IndusInd Bank’s NRE and NRO Regular Savings Accounts maintain your funds in Indian rupees and gives you attractive interest rates on your earnings!
With us, get access to the best-in-class digital banking services for quick funds transfer, paying bills, checking account balance, etc. Visit our website to know more about our eligibility and documentation requirements.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
