For NRIs residing abroad having an NRI savings account makes it easy to manage finances in India. It’s important to know what NRE account and NRO account is and how it works, to know which one is right for you. In this article we will cover both these types of accounts in detail.
What is an NRE Account?
An NRE (Non-Resident External) account is designed for NRIs to transfer their foreign income to India. Deposits are made in a foreign currency and converted into Indian Rupees (INR) at the time of credit.
Here are some key NRE account benefits:
- Interest earned on an NRE account is fully exempt from income tax in India.
- Since the amount is maintained in Indian Rupees this helps mitigate currency risk.
- Account holders can easily access and manage their funds through online and mobile banking applications.
- NRIs can also access other banking services such as fixed deposits and other investment options.
- NRE accounts often offer attractive interest rates, making them a competitive option for NRIs seeking good returns on their savings.
What is an NRO Account?
An NRO (Non-Resident Ordinary) account is designed to help NRIs manage their income earned in India while residing abroad. Funds in this account are deposited and maintained in Indian Rupees (INR).
Here are some key NRO account benefits:
- NRO account enables NRIs to manage income received in India efficiently.
- Fixed and recurring deposits help you earn higher interest rates.
- Ensures payment of bills, loan repayments, and other transactions within India.
- Provides investment options in mutual funds and other capital assets such as property (except agricultural land).
Key Differences Between NRE and NRO Account
Once you know what each account is meant for, it helps to compare them side by side on key parameters. Though both are designed for NRIs, the way they handle funds, taxation, and access differs significantly.
Below are the main areas where NRE and NRO accounts differ in operation and suitability:
- Repatriation: NRO account holders can repatriate funds up to USD 1 million per financial year. An NRE account offers full repatriation on both principal and interest on your savings.
- Taxation: The interest you earn on an NRE account is fully exempt from income tax in India. However, interest earned through an NRO account is considered taxable and is subject to TDS as per prevailing Indian tax regulations.
- Joint Holding: You can open an NRE account jointly only with another NRI. In contrast, NRO accounts offer more flexibility, allowing joint operation with either a resident Indian or another NRI. This can be particularly useful when a family member in India needs to help manage the account or handle day-to-day transactions.
These differences can affect how you access and manage your funds, so it’s worth evaluating them carefully before choosing either or both accounts.
How to Open NRE and NRO Account
Setting up an NRE or NRO account is a simple process. Follow these steps to begin:
Step 1: Choose a bank which offers NRI banking services, you can apply for either an NRE, NRO, or FNCR deposits.
Step 2: Visit the application form on the bank’s website or app. You can also open an account by visiting the branch.
Step 3: Provide the following documents:
- Copy of your passport and valid visa or work permit
- Recent passport-sized photograph
- Overseas address proof and Indian address (if any)
- PAN card (or Form 60 if PAN is not available)
- FATCA declaration, as per regulatory norms
After the bank verifies your documents and activates the account, you can fund your NRE account by sending money from abroad. To deposit into an NRO account, you can use earnings from Indian sources or transfer funds from another NRO account.
Conclusion
Both NRE and NRO accounts are designed to help NRIs manage their financial needs in India, but they serve different purposes. An NRE account is ideal for parking foreign earnings with tax-free interest and full repatriation. An NRO account is necessary when you have income originating in India, such as rent or dividends, and need a compliant way to receive and manage those funds.
Choosing between NRE account and NRO account or using both depends on your income sources and repatriation goals. Understanding the differences ensures smoother financial planning, better tax management, and easier fund access whether you’re in India or abroad.
Frequently Asked Questions
Can I have both NRE and NRO accounts?
Yes, NRIs can open both accounts. Many individuals use an NRE account for foreign income and an NRO account for managing income earned in India.
Is interest on NRO account taxable?
Yes, interest earned on NRO accounts is taxable in India and is subject to TDS (Tax Deducted at Source) as per applicable income tax laws.
Which is better – NRE or NRO account?
Neither is universally better; it depends on your financial situation. NRE accounts suit those who earn abroad and want full repatriation and tax-free returns. NRO accounts are essential if you receive income from Indian sources.
