NRE & NRO Accounts: Which One is Right For You?

If you’re a non-resident Indian you’re going to need a bank account that allows you to manage your Indian-based income and money earned outside of the country.

A NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account are the most commonly used for this purpose.  You can open either of these in the form of a recurring, fixed deposit, current or savings account. Both of these accounts offer different solutions. To find out which would be best for you, read on for a more detailed analysis.

NRE Account

All NRI’s can open and use an an NRE account, which can be set up in the form of an Indian savings or current account.

This will allow you to repatriate your foreign earnings. All money transferred into an NRE account is automatically converted into Indian Rupees (INR), and you’ll be able to repatriate all funds held in this account along with any interest earned at any point in time, without having having to pay interest tax.

NRO Account

An NRO account helps you manage any Indian based income and allows the owner to receive funds from abroad, such as a pension. Any foreign currency will be converted into INR. You can maintain your account through the usual methods.

NRO accounts also enable NRIs to convert any existing savings accounts into an NRO if and when they become a resident again. While all NRI’s can open this type of account, a minimum of Rs. 10,000 must be held in the account at all times.

The Differences Between NRE and NRO Accounts

Repatriation is classified as the sending of money from a foreign country or bringing money earned in a foreign country back to your Indian account.

It’s easy to repatriate any funds and acquired interest when you hold an NRE account. With an NRO account you are only permitted to repatriate up to $1 million (USD) per financial year. With an NRO account you need a certified account to submit the paperwork detailing all repatriated funds to the RBI on your behalf.

Taxes

All NRE accounts are tax exempted so you won’t have to pay any income, wealth, gift or interest tax. For NRO accounts, all the standard taxes are applied and interest is also subject to tax. However, the NRO does come with a reduced tax benefit under the Double Taxation Allowance Agreement (DTAA).

Depositing and Withdrawing

You can deposit funds from another country in a foreign currency to both NRE and NRO accounts. You can only deposit Indian-based incomes into NRO accounts, however you can withdraw money from either account type.

Transfers

An NRE account gives you the capability to transfer money to other NRE and NRO accounts. If you have an NRO account you can only transfer funds to other NRO accounts.

Opening A Joint Account

You can open both an NRE or an NRO joint account. As NRE’s are for non Indian residents you cannot hold an account with an Indian resident. If you require that option, then opt for an NRO account as it would allow you to open a joint account with either a resident or non-resident.

Deciding on the Best Account For you

NRE accounts are a good option if you need to be able to transfer money earned abroad from another bank account, and enable you to maintain that while you manage any Indian-based income too. Keep in mind that daily financial market changes, like currency strength and conversion rate will have an effect on the sum you receive into your NRE account at any given time.

An NRO is set up for easy access to Indian-based incomes such as property rental, an Indian pension or dividends earned. As all money deposited and withdrawn from this type of account will already be in INR an NRO is not at risk of financial market fluctuations like an NRE.

If you think you might exceed the repatriation amount of $1 million a year, or you want to maintain a reasonable amount of savings in INR without facing taxation then an NRE is probably the best Indian account for you.

Having access to your Indian-based income from an NRO is a better idea if you don’t need to be saving or repatriating large amounts, and taxation and financial record keeping will be less of an issue.

Whichever account you decide is best for you, we can all agree that these two accounts make it easier for an NRI to hold, access and move funds without any complications imposed by foreign banks.