NRE and NRO Accounts: What are they and why would you need one?

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What’s the most complex topic when finally deciding to move abroad? Visa requirements? Finding a new place to live? Or maybe taking on the big challenge of learning a new language?

Sure, all of these can be tricky. But, be it as it may, the financial implications related to living abroad (or doing business in foreign countries) can be among the most puzzling aspects about this decision. And, whatever the situation, it’s always important to get to know your options when it comes to finance, right?

Today, we’re going to talk about two very important bank account options available to citizens of India that live abroad or plan to do so (also known as NRI, or Non-Resident Indians): NRE and NRO bank accounts. Let’s get right to it!

What are NRE and NRO Accounts?

NRE (Non-Resident External) and NRO (Non-Resident Ordinary) are two options of bank accounts held in India, but offered specifically for NRIs (Non-Resident Indians) as per guidelines from the Indian government. The main purpose of these accounts is to provide Indian citizens who live abroad the possibility to conduct their financial affairs in India, depending on their situation.

These accounts might be offered in the form of current, savings or fixed interest accounts, but their conditions, such as fees and interest rates, will vary according to the bank who is offering them. They can be used for deposits, investments, payments and for receiving money from abroad in the form of remittances, for example. What’s important to understand is why someone would need them.

Let’s say, for instance, that you are a Non-Resident Indian (NRI) living in the United States, and you want to transfer money earned in the USA to an account in India on a regular basis. Or maybe you live abroad, but you still have earnings in India that you need to manage with a local account. For such cases, you will need an NRI account – that is, either an NRE or an NRO account. But which one? Let’s learn about their differences.

What are the differences between NRE and NRO accounts?

An NRE (Non-Resident External) account is offered to Indians who live abroad and want to transfer foreign currency to India, as well as to conduct financial transactions in the country (such as paying bills and making investments there). The main characteristic of an NRE account is that it accepts deposits in foreign currency – owners are able to send their foreign earnings in India, which are then converted to Indian rupees. In other words, the account is opened with foreign currency, and the withdrawals are made in Indian currency.

Whether this account is a current or savings one, their interest rates and the balances are not taxable. Also, NRE accounts offer the possibility of converting its deposits back to the original currency – that is, repatriation to the currency of the country where the owner lives – tax-free as well.

So, if you are a NRI and want to transfer your foreign earnings to India, pay bills in India and have the possibility of repatriating your Indian currency deposits back to the country where you’re a resident, an NRE account will be the option for you.

An NRO (Non-Resident Ordinary) account, on the other hand, is the choice for Indian citizens who live abroad and need a bank account to manage the income that they might earn in India. This account will accept either foreign currency or Indian rupees to be set up.

So, if you are an NRI that has income both outside and within India, and your intention is to keep your Indian deposits in the country, then the NRO account is the option for you – since NRE accounts can only handle foreign currency earnings and deposits. And, as with the NRE type, NRO accounts might also be set up as a savings or current account, will accept withdrawals in Indian currency, and can be used to pay expenses in India.

To sum it up, these are the most important points to consider in each case:

  • Taxes: NRO accounts are subjected to taxes in India, such as interest rates and taxation upon the event of repatriation of currency to another country. This is not the case with NRE accounts, which are tax-free.
  • Currency rates: NRE accounts are subject to currency fluctuations, while NRO accounts are not. That is, if the deposits made in an NRO account are made in Indian currency (INR), there is no risk of exchange rate fluctuations. In an NRE account, however, this can be a risk because deposits are made only in foreign currency and converted to Indian rupees.
  • Currency deposits and withdrawals: the deposits made in NRE accounts are in foreign currency, while NRO accounts might have deposits either in foreign or Indian currency (rupees). Both accounts offer withdrawals and are maintained in Indian currency.

Who can open a NRE and NRO account?

Both NRE and NRO accounts can be opened by NRI (Non-Resident Indians) depending on their specific conditions – if they want to transfer foreign money to India or if they want to manage money earned in India from abroad.

That said, there are guidelines when it comes to joint accounts in both cases. NRO accounts can be held by an NRI and an Indian resident, whereas NRE accounts can only be set up with other NRIs in a joint account scenario.

So there you have it! NRI accounts (NRE and NRO) are offered by most (if not all) commercial banks in India, and specific details and rates can be directly checked with your bank of choice. We hope we’ve been able to provide more clarity on this subject, but please keep in mind that this article is meant only as an overview of the topic, does not cover every aspect of it, and should not be considered as financial advice or used as a replacement for actual financial / legal advice in this matter. For that, we encourage you to consult with professional advisors to make your decisions.

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