Non-resident Indian often faces the situation of maintaining a Rupee account in India. Specifically how they should choose NRE or NRO accounts. This post clarifies what options are available for NRIs,
Why do we require a separate account for NRIs / PIOs?
Basically, there are two reasons to open an account:
- NRI wants to repatriate foreign money to India
- NRI wants to save and invest the profits of India in India.
What are the account options for NRIs?
NRI has the following two account options available to open in India:
- A non-resident foreign rupee (NRE account)
- An Ordinary Non-resident Rupee (NRO account). An NRO account can also be started by a person of Indian origin (IOP) and a foreign citizen of India (OCI).
Similarities between NRE and NRO accounts
- Both accounts can be started as savings account as well as checking accounts
- They are accounts of Indian rupees.
- The average monthly balance that will be maintained for the NRE and NRO accounts depends on the bank.
- The NRO or NRE account can take the form of savings, current, recurring or fixed deposit accounts.
- NRO savings accounts can also be managed with post offices in India. However, persons and entities in Bangladesh and Pakistan require the prior approval of the Reserve Bank.
Differences between NRE and NRO accounts
- Repatriation: The NRE account is freely repatriable (Principle and accrued interest) while the NRO account has restricted repatriation, i.e. permitted remittance allowed from NRO is up to 1 million USD net of applied taxes in a financial year after Of giving commitment along with a certificate of A public accountant.
- Tax Treatment: The NRE account is tax-free (not income tax, wealth tax and gift tax) in India. On the other hand, the interest accrued on the NRO account and the credit balances are subject to the respective income tax bracket and are also subject to the applicable wealth tax and donation tax.
- Deposit of Rupee Funds Developed in India: If an NRI / PIO / OCI is earning revenue originating in India (such as salary, rent, dividends, etc.), it is only allowed to deposit it into the NRO account. These profits are not allowed to be deposited into the NRE account.
- Joint Participation: The NRE account may be held jointly with another NRI but not with a resident Indian. On the other hand, the NRO account can be maintained with NRI as well as resident Indian ( a close relative), as defined in Section 6 of the Companies Act 1956.
When to choose NRE account
- When you want to park your foreign income remitted to India converted into Indian Rupees.
- When you want to keep the savings in Rupee, but keep them flexible.
- When you want to make a shared account with another NRI (only possible in an NRE account)
- When you want your Rupee’s savings to be freely repatriated.
When to choose NRO account
- When you want to accumulate revenue earned in India in INR.
- When you need an account in which you can deposit any revenue earned in India, such as rent, dividends, etc.
- When you want to open an account with another resident Indian (close relative)
Also Read About: Are NRIs eligible to buy property in India?
Interest rates on savings, time deposits for the NRE and NRO accounts are very alike to what we get in the Indian resident savings account in India.