Which NRI bank account to use - NRE or NRO,s an account meant for you?

When you are an NRI or a Non-Resident Indian, opening the right bank is a crucial part of handling your finances in different countries. NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts have their merits and would be designated as NRO or NRE depending on the accounts nature of income, how one treats or takes money overseas and taxation principles. This guide will help you understand the differences between these accounts and make an informed decision that is most appropriate for your situation, goals and obligations. 

What do NRE and NRO accounts mean?

NRE and NRO accounts are fundamentally created to facilitate people from India who live abroad and have income earned in India and other foreign earnings.

NRE account: This type of account is for the Indian citizens who are serving in other foreign countries and wish to deposit their salaries earned abroad back to India. It works in Indian Rupees, and this is where Indian converts foreign currency to Indian rupees for safekeeping. The NRE accounts allow both principal and interest to be repatriated and won’t be taxed in any part of India. The best high interest NRE account is offered by IDFC FIRST Bank and this comes with attractive monthly interest payments in Indian rupees which helps to build wealth in India.

NRO account: An NRO account, on the other hand, is used for the purpose of holding income earned from within India, for example income from rents, dividends, or any other Indian sources. Also, it is for both Indian and foreign currency reserves and is maintained in INR, the Indian currency. Yes, there are limits on the remittances but it has recently been made easy to transfer 1 million US dollars annually through these accounts; however these accounts are subject to taxation. IDFC FIRST Bank’s NRO account offers perfect solutions for management of local income with the use of a Visa debit card and easy-to-use mobile banking application, which allows clients access the account and manage funds 24/7 globally.

NRE and NRO accounts in detail with a few key differences

Purpose: Income earned abroad is kept in NRE accounts but income earned in India is handled by NRO accounts.

Repatriation: Funds in NRE accounts can be fully repatriated at any time which facilitates the sending of money to other countries. In contrast, NRO accounts have a cap on repatriation not exceeding 1 million dollars within a particular fiscal year and may need a tax clearance.

Tax implications: There is no taxation for revenues for both, but in the former, interest earned on NRE accounts is not taxed while in the latter, interest earned on NRO accounts is taxed as TDS as per regulations in the income tax of India.

Currency that can be deposited: Deposits can be made in foreign currency for both the NRE and the NRO accounts. However, the foreign currency deposited will be transformed into Indian rupees and kept in the NRI account.  

Ownership: An NRE and NRO account, on the other hand, can only be owned in partnership with a fellow NRI. But, if the account holder is a resident of India, then the account can be operated on Former or Survivor basis.  

In which circumstances can an NRE account be opted?  

In the below cases, an NRE account is suitable:  

Both securing and extending foreign investments is not a problem because the only income that flows into the country is remittances made to Indian taxpayers.  

You are a non-resident , and wish to make deposits in India , where the account can earn tax free interest.  

You intend on repatriating the funds after changing them to Indian rupees but appreciate the ability to send them back out of the country whenever you want.