Are you a non-resident Indian, or are planning to shift abroad soon? Read this article to know the difference between NRE and NRO accounts, and decide which is the best option for you.
Before we get into the differences between NRE vs NRO accounts, let us glance at their uses. Why do people need these accounts?
The major importance of NRE and NRO accounts is to help NRIs (non-resident Indians) manage their earnings with ease. They may be earning money from both Indian as well as foreign sources, which can make tracking their money a challenge.
According to current guidelines, an NRI needs to convert their regular savings account to an NRE or an NRO account. They cannot have a savings account in their name in India. Thus, NRE and NRO accounts are the only option for NRIs.
NRE is short for Non-Resident External Account and it offers complete security to the account holder’s funds. All money deposited in this account gets converted to INR or Indian Rupees. So you can deposit funds in any currency, but only withdraw INR.
The money that you deposit in this account must have been earned outside of India. You can transfer money to both NRE and NRO accounts from an NRE account. It is exempt from taxes and is mostly used for personal and business banking, and making investments in India.
NRO stands for Non-resident Ordinary Account and it’s main purpose is to manage funds that are earned in India by an NRI, for example, pension, rent, etc. This account can be jointly held by an NRI and a resident Indian, which makes it a great choice for families where only one or two members are NRIs.
The funds in this account are subject to TDS deductions. These accounts allow both foreign and INR to be deposited, unlike NRE accounts. But, withdrawals can be made in INR only.
The major differences between NRE and NRO accounts are mentioned in the table below -
| Criteria | NRE Account | NRO Account |
|---|---|---|
|
Full Form |
Non-Resident External Account |
Non-Resident Ordinary Account |
|
Purpose |
To deposit funds earned abroad |
To maintain funds earned in India |
|
Currency Options |
Only foreign currency can be deposited, and INR can be withdrawn |
Both foreign and INR can be deposited, but only INR can be withdrawn |
|
Account Holding |
2 NRIs can hold an account |
An NRI and a resident Indian can hold an account |
|
Fund Transfer |
Both to NRE and NRO accounts |
Only to NRO accounts |
|
Repatriability |
No limit |
Up to USD 1 million in a financial year |
|
Exchange Rate |
Can be affected by 2 types of losses |
Considerably safer |
|
Taxability |
Exempt from taxes |
TDS is deducted |
This section talks about each criterion and how they vary between an NRE and an NRO account.
Both the NRE and the NRO account are savings accounts opened by NRIs but their purpose differs slightly -
A non-resident Indian can utilize an NRE savings account to transfer funds earned outside of India to the country in Indian currency.
On the other hand, an NRO account can be used to accumulate and take care of the income you are earning in India, like rent, pension, etc.
Currency varies from country to country. Here is how the currency you can deposit in NRE and NRO accounts vary -
You can deposit funds only in foreign currency in your NRE savings account.
In an NRO savings account, you can deposit funds in both foreign and Indian currency (INR).
From both these accounts, you can withdraw only INR.
Often you may want to jointly hold a bank account with your spouse or close relative. Who you can hold the account with is different for an NRE vs NRO accounts -
An NRE account can be jointly opened by two NRIs.
An NRI and a resident Indian can jointly hold an NRO account. This makes NRO a better choice for NRIs who have parents or a family member living in India.
You may need to transfer funds from your bank account to another for various purposes. Here is the difference between NRE and NRO accounts on the basis of transferring funds -
You can transfer funds from an NRE account to both NRE and NRO accounts. This gives NRE accounts an edge over NRO accounts.
From an NRO account, you can only transfer funds to an NRO account.
Repatriation refers to the moving or transferring of liquid funds from or to a foreign country. This is how it varies in an NRE vs NRO account -
You can repatriate both the interest and the principal amount from an NRE account, without any limits.
As from an NRO account, you can repatriate the interest amount. But only up to USD 1 Million of the principal can be repatriated in a financial year after paying applicable taxes.
You may lose some money due to the varying exchange rates. But one type of account is safer than the other when it comes to losses -
Funds in an NRE account may be affected by two kinds of losses - daily fluctuations in the value of INR and conversion rates.
Funds in an NRO account are less likely to be affected by exchange rate risks.
Paying taxes is inevitable. But can you save taxes depending on which type of account you open? Here is how taxes are deducted for each of these accounts -
Both the principal and interest amounts in an NRE account are exempt from income tax.
The funds in an NRO account, however, are applicable to Tax Deductible at Source (TDS) being deducted.
Both NRE and NRO accounts are useful for NRIs to manage their funds. With some major differences, they have their own advantages and disadvantages.
You should take a close look at what your needs are and then decide which account will be the best choice for you. You can also choose to have two accounts - one NRE and one NRO. This way you will be able to manage your funds most comfortably.
The major disadvantage of an NRO account is that there is a limit to how much funds you can repatriate in a financial year. You can only remit USD 1 million of your principal amount after paying the applicable taxes.
Yes, you can withdraw money from an NRE account in India in INR.
The main advantage that an NRO account has over an NRE account is that it allows you to deposit money in both foreign as well as Indian currency.
There are three types of accounts that NRIs can open to manage their funds - Non-Resident Ordinary Account (NRO), Non-Resident External Account (NRE), and Foreign Currency Non-Resident Accounts (FCNR) accounts.
NRE and NRO are separate accounts, but you can open both accounts as an individual.
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