What are NRE & NRO Accounts?

Globalisation is the new normal for the modern world. People migrate to other countries for better opportunities every day. Indians are well known for working and living in multiple countries. In 2021, over 1.3 crore NRIs and People of Indian Origin were estimated to be living in foreign countries. Legally, Indians earning in a foreign country can not transact through a normal savings account. Special accounts like NRO and NRE have been facilitated for such transactions.

What is an NRE Account?

However, the deposits are subject to many currency rate fluctuations and an NRE account doesn’t provide any protection against them. In spite of this one con, an NRE account provides a tax-exempt interest on the money deposited, which makes the interest and the principal amount tax-free.

How NRIs Invest in India?

The Foreign Exchange Management Act (FEMA) has rules for any foreign earned capital which the NRIs have to follow while investing in India. As per the law, NRIs are allowed to invest in stocks, mutual funds and real estate etc. To access the capital markets, NRIs can opt for the Portfolio Investment Scheme or the Direct Subscription Route.

The Portfolio Investment Scheme introduced by the RBI is the primary mode of investment for NRIs. Through the scheme, NRIs can buy/sell stocks, debentures and other securities allowed by the RBI in India. NRIs have to choose between NRO and NRE accounts while investing depending on the nature of the investment.

How do these Accounts Operate?

Both NRE and NRO accounts operate similarly. The choice between the NRE and NRO accounts depends on if the investment is repatriable or non-repatriable. While investing in India, NRIs have to indicate the method of investment.

If the payment method is repatriable, you have to opt for an NRE account these deposits are fully repatriable. If the payment method is non-repatriable, you have to choose an NRO account. During redemption of the investments, if the investment is not tax-exempt, the tax is deducted at source.

If you want to send the amount out of India after redemption, you should opt for NRE account before investing. NRIs have to maintain transparency while investing in India. The facility of redemption of capital invested from India is only available to NRIs, and thus provide their overseas address while filling the NRI banking form.

What are the differences between NRE and NRO Accounts?

The major differences between NRO and NRE accounts pertain to repatriation, taxability, fund deposit and withdrawal and transferability.

Difference Between NRE and NRO Account 

The major differences between NRO and NRE accounts pertain to repatriation, taxability, fund deposit and withdrawal and transferability.

  NRE NRO
Repatriability The deposits in an NRE account along with the interest earned is fully repatriable. Repatriation is restricted from NRO accounts. You can repatriate just $1 million in a year from an NRO account with the help of a CA.
Taxation The interest earned on deposits in an NRE account is tax-exempt. The income from an NRO account is taxed. NRIs can reduce their tax liability by availing tax benefits under the Double Taxation Avoidance Agreement with certain countries.
Deposit rules You can deposit any amount in a foreign currency in both the NRE and NRO accounts. INR-denominated funds originating in India can only be deposited in the NRO account.
Fund Transfer You can transfer funds from an NRE account to another NRE account as well as NRO account. Funds from an NRO account cannot be transferred to an NRE account.
Joint account You cannot open a joint NRE account with a resident Indian. The joint account holder for NRE accounts has to be an NRI. An NRO account doesn’t have any restrictions. You can open an NRO account with a resident Indian as the joint account holder.
Currency fluctuations The deposits in an NRE account are exposed to exchange rate fluctuations as well as conversion loss. NRO account deposits are not exposed to daily currency fluctuations.

How do I choose which account to open for myself?

Both the NRE and NRO accounts serve different purposes. An NRE account allows easy repatriability and transferability The NRO account is used to maintain funds generated from Indian income sources so if you have an Indian income source, opt for an NRO account. But, if you just want to convert foreign income into Indian currency, the NRE account would be an ideal choice. NRE account deposits earn tax-free interest with no restrictions on repatriation.

Conclusion

The Indian government provides a host of benefits to NRI investors. The biggest NRI account benefits with India Infoline include accounts that can be opened online through video verification and various tools being made available to the NRIs. With the variety of NRI investing tools offered by India Infoline, you can have a rewarding investing journey in India.

Frequently Asked Questions Expand All

Yes, students overseas can have a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) account.

To open an NRE or NRO account in India, the citizen needs to have lived outside India for 120 days or more. They also should have spent less than four years of the last 10 years living outside India.

List of documents required for opening an NRE and NRO account:
 

  • Identity proof (Copy of PAN, passport)

  • NRI status proof (Copy of visa, work permit, PIO, OCI)

  • Proof of residence abroad

  • Indian address proof

  • Cancelled cheque

  • PIS permission letter

 

Funds originating in India i.e. in Indian Rupees or INR can be deposited only in NRO Accounts and not an NRE Account. However, funds originating from a foreign country (foreign currency) can be deposited in both NRE and NRO accounts.