If you are an NRI (Non-Resident Indian) wishing to handle your funds in India, you should be aware of the many account options available to you. NRIs typically select between two types of accounts which are NRE (Non-Resident External) and NRO (Non-Resident Ordinary).
While both accounts provide particular benefits, they serve different objectives, and the best option depends on your individual requirements. Let’s look at what each account type offers and how they differ.
NRE and NRO
- NRE Account (Non-Resident External Account))
An NRE account enables a NRI to invest the money he or she earns in a foreign country for Indian financial investments. This account only accepts foreign currency deposits and accepts the amounts received in the local currency equivalent to Rupees. It is advantageous if you are earning in foreign country but you wish to keep those income in India for convenience or for utilization.
- NRO (Non-Resident Ordinary)
NRO account is an ordinary Account which is opened and operated by Individuals of Indian origin who permanently resides in foreign countries. An NRO account enables NRIs to freely deal with income received in India, for example rent, dividends or pension. It is also convenient if you plan to have deposits sometimes in Indian currency and sometimes in foreign currency given this account takes both.
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Difference Between NRE and NRO
| Feature | NRE Account | NRO Account |
| Deposit Type | Foreign currency only | Foreign and Indian currency |
| Purpose | To hold and transfer foreign earnings in India | To manage income from India, such as rent or dividends |
| Repatriability | Freely repatriable (principal and interest) | Limited repatriation (up to $1 million per financial year) |
| Taxation | Interest is tax-free in India | Interest is taxed in India (subject to TDS) |
| Exchange Rate Fluctuations | Subject to currency conversion risks | No currency conversion risk as funds are held in INR |
| Joint Holding | Only with another NRI or close resident relative (on a “former or survivor” basis) | With both NRIs and resident Indians |
When to Choose an NRE Account:
If you mostly earn from foreign countries and want to repatriate them into India, then you should open an NRE account. It used to be tax-free, it’s fully repatriable, and doesn’t let you accumulate heavy conversion losses. However, remember that it does not allow deposits in Indian Rupees, so it won’t be helpful for managing Indian income sources.
When to Choose an NRO Account:
If you earn income within India through rents, pension or dividends, then the NRO account is preferable. It supports deposits in the Indian currency as well as a foreign currency which makes it convenient regardless of the kind of income that is earned.
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Conclusion
Both NRE and NRO accounts have unique their unique features. If you want to save taxes on your international profits and have unlimited freedom to repatriate funds, choose an NRE account. Choose an NRO account if you need to handle income sources within India and are willing to accept some additional complexity in terms of taxation and repatriation constraints.
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