Non-Resident Indian (NRI) is an Indian national who, for the time being, leaves India for the purpose of employment, education and similar other reason. Persons with such residential status suffer from a dilemma that when they need to open an NRI account in India. NRE account and NRO account two types of NRI account which differ in the sense that the former is an external rupee account while the latter is an ordinary rupee account.
NRI’s are allowed to open NRO account so as to receive funds from local transactions, wherein the exchange rate risk is borne by the depositor. On the other hand, NRE account can be opened by NRI’s with funds transferred to India from a foreign bank. There are some differences between NRE and NRO account that are discussed in this article.
Content: NRE Account Vs NRO Account
|Basis for Comparison||NRE Account||NRO Account|
|Acronym||Non-Resident External Rupee Account.||Non-Resident Ordinary Rupee Account.|
|Meaning||A bank account in which NRI's can deposit income generated from external sources is known as NRE Account.||A bank account opened by NRI to deposit income mainly generated from an Indian source is known as NRO account.|
|Joint account||Can be opened by two NRI's together.||Can be opened by NRI along with an Indian resident.|
|Deposit and withdrawals||Deposits in foreign currency and withdrawals in Indian rupee.||Deposits in both foreign currency and Indian rupee and withdrawals in Indian rupee.|
|Rate of interest||Low||Comparatively high|
|Fund Transfer||To NRO is possible||To NRE is not permissible|
|Repatriability||Freely repatriable||Interest is freely repatriable but the principal is not freely repatriable, however, there are cetain exceptions.|
Definition of NRE Account
A Non-Resident External Account or NRE account is a bank account maintained by NRIs to park their foreign income in India. The account holder can repatriate overseas earnings and transfer it to India with full security and convenience. Notes or traveler’s cheque is used to transfer foreign currency. The account is denominated in INR.
Interest earned on the deposits made is exempt from tax. It offers full repatribility of funds, i.e. principal plus interest. The account is maintained exclusively in Indian currency.
Definition of NRO Account
Non-Resident Ordinary Account or NRO account is a bank account, held to manage the income earned in India like rent, pension, dividend, interest, etc. It is opened either by the citizen of India, while temporarily shifting to abroad or by an NRI by transferring money from his home country or his other NRO account.
A normal bank account can also be redesignated to NRO account when the residential status of the account holder is changed to NRI. The account is mainly used to park money earned from Indian sources in India. Repatriation of funds is permissible by RBI only up to 1,000,000 dollars in a financial year and from current incomes, for bonafide purposes.
Key Differences Between NRE and NRO Account
The paramount differences between NRE and NRO account are explained in the given below points:
- NRE account stands for Non-Resident External Rupee Account while the NRO account is an abbreviation for a Non-Resident Ordinary Rupee Account.
- NRE account is a bank account in which the NRI’s can deposit income earned abroad. An account mainly used to deposit income earned in India by the NRI’s is known as NRO Account.
- NRE account allows joint openings, where two NRI’s can open an account together. Conversely, one Indian resident and one NRI can open a joint NRO account.
- In NRE account deposit is allowed in foreign currency only, and drawings can be made in Indian currency only. As opposed to NRO account, deposit in both Indian and foreign currency is allowed, whereas withdrawals are allowed in Indian rupee only.
- The rate of interest in NRE account is lower than NRO account.
- Interest on NRE account is tax-free it is just opposite in the case of NRO account.
- Fund transfer from NRE to NRO account is permissible, but vice versa is not possible.
- Principal and interest are freely repatriable in NRE account. Interest on NRO account is freely repatriable but there are restrictions on the transfer of the principal amount from India to another country, however, certain exceptions are there i.e. all current incomes like pension, rent, dividend income, etc. and remittances up to 1,000,000 US$ per financial year.
- The two accounts can be of any bank account like a savings account, recurring account, current account or term deposit account.
- Both can be opened either jointly or severally.
- Nominations are permitted on both the accounts.
The two accounts are used by NRI’s to park their hard earned money in India. While the NRE account is used to park money earned overseas to India or to keep the savings in Indian currency, NRO account is used to park money earned from Indian sources in India. So, if you are confused between these two, then you can make a choice as per your needs and the benefits associated with the two accounts.