A common confusion among most NRIs is whether they should open an NRE or NRO account in India. Understanding the key differences between them can help make the right decision.
Even after moving to a foreign country, most NRIs continue maintaining an INR account in India. NRE (Non-Resident External) and NRO (Non-Resident Ordinary) are two of the most common bank accounts used by such NRIs.
Have you recently moved to a foreign country and want to open a Rupee account as well? What will you select between NRE and NRO? Take a look at some of the biggest differences between NRE and NRO account to make the right decision-
- Account Purpose
The biggest difference between NRE and NRO account is their purpose. An NRE account is an Indian denomination account for NRIs who want to transfer their foreign earnings to India. In other words, funds that originate from a foreign country can be transferred to India through an NRE account.
NRIs use an NRO account for depositing their Indian earnings. Unlike resident Indians, NRIs are not allowed to open or operate a regular savings account. They can use an NRO account for their Indian earnings like rent, dividends, pension, etc.
- Deposits and Withdrawals
Both NRE and NRO are Indian denomination accounts. An NRE account only allows the deposit of foreign earnings. You cannot deposit your Indian earnings in an NRE account. But an NRO account can be used for depositing Indian as well as foreign income.
- Taxability of NRE and NRO Accounts
No matter if you open an NRE or NRO savings or term deposit account, the balance or the invested capital will earn interest. NRE accounts are tax-exempt in India. This means that you get to keep the entire interest income generated by your NRE savings or deposit accounts. But according to the tax laws in India, NRO accounts are not tax-exempt.
Interest generated by an NRO account is taxable. Moreover, other taxes like gift tax, wealth tax, income tax, etc. are also applicable to the NRO accounts. However, NRO account holders can reduce their tax liabilities by using DTAA (Double Taxation Avoidance Agreement) if they are currently in a country with which India has this agreement.
- Principal and Interest Repatriability
The next important NRE vs NROdifference is with regards to repatriability or transferability. With an NRE account, you can freely repatriate the principal as well as the interest generated by the account to your current country of residence without any limits or restrictions. The same is not true for NRO accounts.
While NRO account holders can repatriate the entire interest income, only up to USD 1 million of the principal amount can be repatriated to a foreign country in a financial year.
- Joint Holding Option
Both the accounts offer joint holder option. But with an NRE account, the joint holders can only be two NRIs. You cannot open an NRE account along with a resident Indian. An NRO account offers this option.
You can open it along with an NRI or even a resident Indian. However, both the accounts do allow you to have a mandate holder who is a resident Indian for easy monitoring and operating of account. Most banks also offer a debit card and cheque book to the mandate holder.
Should You Open an NRE or NRO Account?
Now that you know the biggest NRE vs NRO accountdifferences, it shouldn’t be difficult for you to choose one. If you want to transfer your foreign earnings to India regularly, then an NRE account is a way to go. But if you have income sources in India, then an NRO account is what you need for depositing your Indian earnings.
Look for a reputed Indian bank for your NRE or NRO account to experience a wide range of NRI banking services.