Quick Guide to NRE/NRO Accounts

by Reuben Williams Adviser

Now that you’ve decided to move abroad, make sure your financial affairs in the homeland are sorted and streamlined. As per the Foreign Exchange Management Act (FEMA) guidelines, Non-Resident Indians (NRIs) cannot hold regular bank accounts in the country. Hence, once your resident status changes, you must update all your existing bank accounts to those designated for NRIs. There are various banking options for NRIs, but in this post, let's focus on the non-resident external (NRE) and non-resident ordinary (NRO) bank accounts. 

What is a Non-Resident External (NRE) Account?

This is an INR-dominated account designed basically to park foreign earnings in any currency. The deposited money is converted into rupees at the prevailing exchange rate. Like other bank accounts, there are various types of NRE accounts, such as savings, current, recurring, or fixed deposit. It can be operated individually or jointly with another NRI. You can also hold this account with a 'close relative resident Indian but only on a 'former or survivor' basis.

Key Features of NRE Account:

●        The NRE account is exempted from tax in India. It means that both the principal & interest accrued on the amount deposited is tax-free.

●        The account facilitates the repatriation of foreign currency to India without any restrictions. Also, You can transfer funds to other countries from an NRE account.

●        You can earn an attractive interest rate per annum on your savings account and fixed deposits.

●        NRE accounts are ideal for business activities and making a direct investment in India.

●        The funds in NRE accounts are prone to exchange rate fluctuations.

●        Loans/overdrafts facility can be availed against an NRE fixed deposit.

●        The NRE account can be reverted to a resident account on returning to India permanently.

●        Nomination is permitted.

What is a Non-Residency Ordinary (NRO) Account?

This NRI account is also maintained in Indian rupees and can be held as savings, current, recurring, or term deposits. It is ideal for managing locally-sourced income, such as commissions, dividends, pension, rent, etc. Money can be deposited in either rupees or foreign currency but withdrawn only in INR. An NRO account can be operated jointly with another NRI or an Indian resident (close relative) on a former or survivor basis.

Key Features of NRO Account

●        The interest accrued on NRO accounts is subject to TDS (Tax Deductible at Source).  Some concessions can be availed if there is a Double Taxation Avoidance Agreement (DTAA) in place between India and the country of residence.

●        In terms of repatriation, the maximum limit is $1 million in a financial year after payment of applicable taxes.

●        A loan and nomination facility is available.

●        On permanent return to Indian, You can convert an NRO account into a resident rupee account.

●        You can earn interest good interest on your savings account term deposits.

Choosing the Right NRI Account

Both NRE NRO accounts offer NRIs an easy way to manage their financial matters in India. However, the two have different objectives. An NRO account is a good option for stashing locally-sourced income, while an NRE account makes sense for remittance of foreign earnings and avoiding taxation liabilities.

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Created on Aug 15th 2021 08:13. Viewed 216 times.

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