Non-Resident Indian Accounts are special accounts designed to cater to the unique banking needs of NRIs. Non-Resident External and Non-Resident Ordinary are two of the most common NRI Accounts. While both NRE and NRO Accounts offer several benefits to NRIs, there are some key differences that NRIs should know about. Let us explore the differences between an NRE and an NRO Account:
Repatriation of funds
The most significant difference is the repatriation of funds. NRE Accounts are fully repatriable, which means that NRIs can efficiently perform a Money transfer to India or other countries to their accounts without any restrictions. Meanwhile, NRO Accounts are partially repatriable, which means that NRIs can only repatriate some amount each financial year and is subject to various conditions.
This makes NRE Accounts more attractive to NRIs who want to quickly transfer their funds out of India.
Tax implications
Another significant difference is the tax implications. An NRE Account is tax-free, which means that the interest earned on NRE deposits is not subject to tax in India. However, the interest earned on NRO deposits is subject to taxes in India, and NRIs need to pay taxes on their income in India. This makes NRE Accounts more attractive to NRIs who want to minimise their tax liability in India.
Currency of deposits
NRE Accounts are denominated in Indian rupees, but the deposits are held in a foreign currency, typically US dollars. This means the funds in NRE Accounts are not subject to currency risk. Meanwhile, NRO Accounts are denominated in Indian rupees, and the funds held here are subject to currency risk.
Joint accounts
NRE Accounts can only be opened as joint accounts with other NRIs. However, the NRO Bank Account can be opened jointly with other NRIs or resident Indians, especially those close relatives of the NRI.
Purpose of deposits
NRE Accounts are meant for those who want to park their overseas earnings in India and earn tax-free interest. These funds can be used for anything, including investments in India. NRO Accounts are designed to park your income earned in India, such as rent or dividends, and earn interest on these funds. These funds can only be used for specific purposes, such as payment of bills, investments in India, or Money Remittance to the NRI’s home country.
Conclusion
NRE and NRO Accounts come under NRI Account types, each with its set of benefits. NRIs should check these differences before choosing between NRE and NRO Accounts to select the account that best meets their banking needs.
