Non-residential Indians have a specific banking requirement, which is distinct from the resident Indians. Read on to know more about the differences between two popular NRI banks accounts – NRE account and NRO account.
Every year, thousands of Indians move to a foreign country in search of a better job or business opportunity. Globally, Indians have one of the biggest expat communities. A report suggests that at the end of 2018, nearly 31 million NRIs were living outside India. The NRIs remit billions of dollars back to India.
As per law, NRIs residing in and earning an income in a foreign country are not allowed to transact through normal savings bank account; they must open an NRE (non-resident external) account or NRO (non-resident ordinary) account. But, often, NRIs debate over NRE vs. NRO account, which is better?
To know which account is better, you must understand the different aspects of both these accounts.
NRO Account
NRO account is a Rupee dominated bank account that allows you to park your earnings in India securely. The income could be dividends from stock investments, property rent, etc. The deposits in the NRO account must be made in Rupees only, and you can hold the account as a savings account, current account, or term deposits to suit your needs. The interest earned from your deposits in the account is subject to TDS (Tax deducted at source). You can also apply for a joint NRO account with an Indian resident or another NRI.
NRE Account
Just like the NRO account NRE account too is an Indian Rupee dominated account, which means the deposits must be maintained in Indian currency only. It is an ideal account for you if you live overseas and wish to remit your earnings to India. One of the significant features of this account is that the deposits (principal amount and the interest) in your account are freely repatriable to your account in a foreign bank.
Now that you know about the basic working of an NRE and NRO account, it would help understand the difference between them:
| NRE Account | NRO Account | |
| Fund Transfer facility | You can transfer the funds in your NRE account to another NRE account or NRO account. | The funds in your NRO account are non-transferable. |
| Account Holding | The banks in India have limitations on account holding structure for NRE account holders. If you wish to open a joint account, the joint holder must necessarily be a non-resident Indian. | The banks do not have any restrictions on the account holding structure. You can open a joint account with either an Indian resident or a non-resident. |
| Currency fluctuations | One of the drawbacks of an NRE account is that the amount you deposit in the account must be earned in a foreign country. And if you are depositing the funds in foreign currency, it will be converted to INR, which means there is a risk of currency rate fluctuations. | Since the deposits are made only in Indian currency, there is no risk of loss due to currency exchange rate fluctuations. |
| Tax Implication | The deposits, i.e., the principal amount and the interest earned, are exempted from tax. | One of the significant drawbacks of the NRO account is that the interest earned from your deposits is subject to TDS. |
| Purpose | You can park your foreign earnings in India in Indian Rupees | You can manage your earnings in India and park the amount in Indian currency. |
Both NRE and NRO accounts serve distinct purposes. You can open an NRE account if you want to remit your overseas earnings to India and hold the money in INR. An NRO account is an ideal choice for you to keep your earnings in India safe and have no plans to use the same in the country of your residence.
