Difference between NRE & NRO account

As an NRI (Non-Resident Indian) when you think of investing in India, the first thing which comes to your mind must be to open an NRE (Non-Resident Rupee) account or NRO (Non-Resident Ordinary Rupee) account.

Aug 23, 2018 04:08 IST India Infoline News Service

As an NRI (Non-Resident Indian) when you think of investing in India, the first thing which comes to your mind must be to open an NRE (Non-Resident Rupee) account or NRO (Non-Resident Ordinary Rupee) account.
 
It is only once the NRE/NRO account is opened, you could apply to get an approval from RBI for investing in the Indian Secondary Market at your designated branch of an authorized bank. Upon receiving a permission letter from the bank, you will be given a PIS permission letter. This allows you to invest in the secondary market. After which you can open a trading/demat account with your respective designated branch and make investments.
 
But, which one to choose is the dilemma you might be facing.
 
To help you choose the account which suits your requirements the best; let us closely have a look at the two types of NRI bank accounts, their similarities, and differences.
 
What is an NRE account?
An NRE account is a Non-Resident Rupee Account with the complete repatirability of both principal and interest amount. Repatirability means the ability of an asset (here principal and the interest amount) to be moved back from a foreign country to the home country of the investor.
 
What is an NRO account?
An NRO account is a Non-Resident Ordinary Rupee Account with the repatirability of up to USD 1 million on both principal and interest amount per financial year.
 
NRE vs NRO: which one to choose?
Let us compare both the NRE and NRO accounts to get a clearer picture as to which one to choose in which conditions.
 
Similarities between NRE and NRO account
Both NRE and NRO can be opened as savings as well as current accounts in Indian Rupees which should be maintained with an average monthly balance based on bank’s requirement.
 
Differences between NRE and NRO account
  • Repatriation: While NRO has a restricted repatirability of USD 1 million net of applicable taxes for a financial year, after a given undertaking from a CA (Chartered Accountant). NRE, on the other hand, is freely repatriable.
  • Tax liabilities: While NRE is a tax-free account, interest earned by an NRO account is subject to tax payment as per the applicable tax slab.
  • Deposit of INR generated in India: The funds generated in Rupees from sources in India can only be deposited in NRO accounts. Such funds cannot be deposited in NRE accounts.
  • Joint holding with a resident Indian: NRE account can have an NRI joint holder as well as an Indian resident. While an NRO account can have a resident Indian (a close relative) as joint holder under Section 6, Companies Act 1956.
 
You should choose NRE account when you:
  • Want to park overseas earning in INR.
  • Want to freely repatriate the money
  • Want to maintain liquid savings in INR.
  • Want an NRI as a joint holder.
 
You should choose NRO account when you:
  • Want to park overseas earning in INR.
  • Want to deposit earnings in India (rent, dividends) in INR.
  • Want an Indian Resident (a close relative) as a joint holder.
 
Conclusion:
NRIs can invest into the Indian market by opening either an NRE or NRO account. While if you are looking for full repatriability and tax-free interest income, opening an NRE account will be beneficial. NRO account would be beneficial if you are looking forward to managing alternative sources of income in India.

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