NRE and NRO accounts

What is the Difference Between NRE and NRO Accounts

What Is the Difference Between NRE And NRO Account?

Non-resident Indians (NRIs) may find managing foreign investments in India challenging. Finding the best account to save their money could lead to confusion due to the abundance of options on the market. In such a scenario, NRO (Non-Resident Ordinary) and NRE (Non-Resident External) accounts can be the two primary opportunities that NRIs may consider.

A non-resident external account (NRE) differs from a non-resident ordinary account (NRO). It is essential to comprehend the difference between the NRE and NRO accounts before deciding between these two. Continue reading to learn more about their distinctions and features.

What Do You Mean by an NRE Account?

Between NRE vs. NRO accounts, an NRE Savings Account established in India provides a secure and convenient way for account holders to deposit foreign earnings or transfer funds overseas. Irrespective of the currency the funds are received, all amounts credited to an NRE Account are converted into Indian Rupees (INR). This enables NRIs to keep their foreign currency earnings in Indian Rupees.

The funds deposited into and the interest one earns on the NRE accounts are exempt from taxation, offering a tax-free advantage to account holders. Additionally, NRE account holders can repatriate their funds anytime, making it a convenient choice for managing foreign income in India.

Features of an NRE Account

Between NRE and NRO account differences, the noteworthy features of an NRE account are as follows:

  • NRE savings accounts are maintained in Indian Rupees, irrespective of the currency in which the account holder deposits funds. Thus, the deposited amount is converted into Indian Rupees at the time of deposit.
  • Only Non-Resident Indians (NRIs) are eligible to open an NRE account.
  • An NRE savings account allows NRIs to repatriate their funds from the account.
  • Funds from an NRE savings account can be easily transferred to an NRO account.
  • If the NRE account holder is an NRI, they can jointly hold the NRE account with another NRI.
  • If an NRI returns to India and becomes a resident, their NRE savings account will be converted into a regular resident savings account.

Benefits of an NRE Account

Some of the benefits of an NRE account are:

  • Funds in your NRE Savings account are fully repatriable. You can freely transfer funds from India to your overseas account whenever you wish, including both the principal and interest amount.
  • The interest earned on the funds in your NRE account will not be taxable in India, providing you with more significant economic control over your financial wealth. However, it's important to note that the taxation of this interest may vary in your country of residence based on the prevailing taxation rules there.
  • An NRE account is maintained in Indian Rupees, similar to an NRO account. This account is practical for managing your finances in India because it is mostly used for crediting money transfers from your abroad account.

What is an NRO Account?

While living abroad, NRIs can manage their income from different sources generated in India, such as rent, pension, dividends, etc., by opening an NRO Savings Account in India. Owners of NRO accounts may deposit foreign cash easily into their accounts, which will be converted to Indian Rupees (INR). You should know that between the NRE account and the NRO account, the latter is not exempt from tax rules and that any interest you earn will be taxed.

Even though NRIs usually are the ones to create an NRO Account, people can convert their current resident savings account to an NRO account if their residential status changes. When a person decides to become an NRI, they can change their existing savings account kept with a particular Indian bank to an NRO account to handle their finances efficiently while living overseas.

Features of an NRO Account

Consider the following features of an NRO Account when opening one, and it will also help you understand the difference between NRE and NRO:

  • When considering the difference between an NRE and an NRO account, with an NRO Account, you can repatriate or transfer the interest earned on the principal amount deposited. Additionally, you can transfer the principal amount within specified limits. As per regulations, you can transfer up to USD 1 million in one financial year after paying applicable taxes.
  • The interest earned on an NRO Account is subject to a 30% tax deducted at the source. It is important to note that the income deposited in an NRO Account can include various earnings in India, such as rent, dividends, pensions, etc.
  • If your financial holdings involve income earned in India and you require an account to manage it within India efficiently, an NRO Account presents an ideal solution.

Benefits of an NRO Account

When considering NRE vs. NRO, you must know the critical details about the benefits of an NRO account:

  • Submit GST Cancellation form GST REG 16 online on the GST portal.
  • It allows you to deposit savings before relocating to another country and earnings from other sources like dividends, rents, etc. You can also transfer funds from your NRE account or receive overseas remittances into this account. This makes it ideal for Indians with income and assets in India before moving abroad.
  • Between NRE vs. NRO, you can open a joint NRO account with a resident Indian on a former or survivor basis. Additionally, with certain banks like Standard Chartered, you can authorize a resident Indian to act as your power of attorney, enabling them to handle all banking and account-related activities for your NRO Account.
  • Balances in the NRO account are not freely repatriable abroad, except for NRIs and PIOs (Persons of Indian Origin) up to a limit of USD 1 million.

Comparison between NRE and NRO account

Here’s the difference between an NRE and an NRO account:

Parameters NRE Account NRO Account
Account Type Rupee-denominated accoun Rupee-denominated accoun
Source of Funds Foreign income only When comparing NRE NRO account
differences Both foreign income and Indian income
Currency Conversion Funds held in foreign currency Funds converted to Indian Rupees
Taxation Tax-free in India Subject to tax in India
Repatriation Full repatriation allowed Repatriation of up to USD 1 million per year
Repatriation of Principal Allowed Allowed
Repatriation of Interest Allowed Allowed
Joint Account Allowed with other NRIs Allowed with other NRIs or Indian residents
Interest Earned Tax-free in India Taxable in India
Purpose Ideal for foreign income savings and investments Suitable for Indian income and local transactions

The Bottom Line

As an NRI, the difference between NRE and NRO accounts is no longer a matter of personal preference but a regulatory necessity determined by the origin of your income. If you have income earned overseas, an NRE account is required, while income earned in India must be kept in an NRO account in compliance with the relevant rules and regulations.

At Manoj Kumar D & Associates, their experts can provide valuable assistance in selecting the NRE vs. NRO account and managing your finances while residing abroad. With their efficient and professional service, their highly experienced consultants will ensure that your requirements are met with the utmost professionalism per the difference between NRE and NRO account RBI.

Frequently Asked Questions

Which is better, NRE or NRO?

Your financial demands and situation as an NRI (non-resident Indian) will determine whether you choose an NRE and NRO account. Each account has a distinct function; therefore, your choice should be based on your needs.

Can I transfer money from NRE to NRO?

When considering the NRE and NRO, you must know that you can transfer money from your NRE account to an NRO account and another NRE account. The only account to which you may transfer money as an NRO account holder is another NRO account. Sharing money from an NRO account to an NRE account is not permitted.

Can I have both NRE and NRO accounts?

When considering NRE and NRO differences, one can open NRE and NRO accounts to meet their unique needs. Receiving and controlling any revenue produced in India in an NRO account is possible. On the other hand, if the person wants to keep their overseas profits in India, they might choose an NRE account.

Is NRO tax-free?

Between the NRO vs. NRE difference, the interest on deposits made to NRO accounts is taxable. Tax Deducted at Source (TDS) must be deducted from any interest income received from money held in an NRO account. The interest income from these accounts is subject to a 30% tax and any relevant cess and surcharge.

What is the minimum balance for NRO?

The minimum monthly average balance that you must maintain in an NRO account is INR 10,000.