Planning to open an NRI bank account? Confused between NRE and NRO account? Check out this post to know five of the biggest differences between these NRI accounts.
Most of the NRIs are required to maintain an NRI rupee account in India. It can be for transferring foreign earnings to India or depositing their Indian earnings. Two of the most popular accounts for NRIs in India are NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts.
While an NRI can open any of the two accounts, there are some significant differences between them. Five of the biggest differences between an NRE and NRO accounts are discussed below-
1. Account Purpose
The primary purpose of opening an NRE bank account is to deposit or transfer foreign earnings to India. Be it purchasing property in India, sending funds to family, or starting a business, an NRI can use an NRE bank account for sending foreign funds to India for a host of reasons.
An NRO bank account, on the other hand, is for depositing income earned in India. For instance, the rent amount of a let-out property, returns from investment, etc. can be deposited into an NRO bank account of an NRI.
2. Deposits and Withdrawals
NRE and NRO are both rupee designated accounts. An NRI can only deposit foreign currencies in an NRE bank account. Withdrawals are only allowed in INR. Once an NRI deposits foreign currency, it is converted into INR as per the current exchange rate.
An NRO bank account can be deposited with a foreign or Indian currency. Just like an NRE bank account, withdrawals from an NRO account can only be in INR.
Repatriation is the process of transferring funds back to a foreign country. With an NRE bank account, the account holder can repatriate the principal amount as well as any interest generated on the amount.
With the NRO account, the repatriability of the principal amount is restricted up to USD 1 million in a financial year. The interest amount, however, can be fully repatriated without any restrictions.
The interest earned from an NRE bank account is tax-free. This means that you don’t have to pay any income tax, wealth tax, or gift tax on the income generated from an NRE bank account.
But the NRO accounts are taxable. The tax rate will depend on the income tax bracket of the account holder. However, NRO account holders can take advantage of the DTAA if they reside in a country with which India has this agreement to prevent double taxation.
5. Joint Holder
Only an NRI can be a joint holder of an NRE account. A resident Indian is not allowed to be the joint holder with this type of account. However, a resident Indian can be the mandate holder of an NRE bank account.
With an NRO account, either an NRI or a resident Indian can be the joint holder. An Indian resident can also be selected as the mandate holder of an NRO bank account.
Selecting Between NRE and NRO Accounts
Now that you know some of the biggest differences between an NRE and NRO account, the decision between the two should not be difficult. You can consider an NRE bank account if you want to transfer your foreign earnings to India and convert it into INR. It can also be considered by NRIs who wish to have a joint account with another NRI.
An NRO account is an ideal choice for NRIs who want to deposit their Indian earnings into a bank account in India. NRIs who want to open a joint account with a resident Indian can also open an NRO account.