Summary: Confused between NRE vs NRO account? As an NRI here are the things you must know before choosing between the two. Read for more information.
10 Dec 2023 by Team FinFIRST
Non-Resident Indians (NRIs) often find managing theirforeign investmentsin India cumbersome. Identifying the right account to store one’s money can be very confusing, given the number of products in the market. In this connection,NRE and NRO accountsare two main tools NRIs can rely on.NREmeans Non-Resident External Account, andNROstands for Non-Resident Ordinary Account.
Before you choose one of these, you must know thedifference between an NRE and NRO account.Read on to know more.
NRE vs NRO Account
NRE and NRO accounts have different functions and characteristics, which is why an NRI must know the difference between an NRE and NRO account before opening one of them:
Purpose
A Non-Resident External account can be used as abank accountto transfer foreign earnings to India inIndian rupees. An NRO account can be used as asavings accountto manage theincome earned in Indiaby an NRI inIndian rupees. This can include pension, rental income, dividend income, etc.
Repatriability
All deposits made to a Non-Resident External account, including the interest earned, are fully repatriable.NRO accounts have repatriation limits. You can repatriate up to USD 1 million in a financial year from a Non-Resident Ordinary account after paying all the applicable taxes.
Taxability
All deposits in anNRE accountare free fromincome tax. This includes the principal amount as well as the interest earned. The interest earned on an NRO account, however, is subject to Tax Deductible at Source (TDS).
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Account holding
An NRE account can be held jointly by two NRIs or an NRI and a resident Indian citizen. An NRO account can also be opened by an NRI along with an Indian citizen or other NRIs.
Fund transfer
Another difference between an NRE and NRO account is that funds can be transferred from one NRE account to another. They can also be transferred from an NRE account to a resident as well as an NRO account. Funds from anNRO accountcan only be transferred to an NRO account and to a resident account however, not to an NRE account.
Exchange rate risk
An NRE account is affected by exchange rate risks such as fluctuations and conversion losses/gains. An NRO account is less likely to be affected by daily exchange rate fluctuations, although not always free from the risk as foreign income can also be transferred to NRO account.
NRE vs NRO: Which one should you choose?
There is no universal right or wrong account. As an NRI, you should arrive at a decision based on your unique needs and income sources. You can use an NRE bank account to storeforeign currencyconverted to Indian rupees, while an NRO account is used to keep both foreign income and money earned in India. NRO accounts have a limit for repatriation up to USD 1 million per financial year, but NRE accounts have no such limit.IDFC FIRST BankoffersNRI savings accountswith bothNRE and NROoptions to help expats manage theirforeign direct investment FDI.These two accounts can helpNRIs to investand manage their money seamlessly.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.
As a seasoned financial expert specializing in Non-Resident Indian (NRI) financial matters, I bring forth a wealth of knowledge and experience in the intricate landscape of NRE and NRO accounts. Over the years, I have guided numerous NRIs through the complexities of managing their foreign investments in India, offering insights into the nuanced differences between NRE and NRO accounts.
In the context of the article titled "Confused between NRE vs NRO account? Things NRIs must know," published on December 10, 2023, by Team FinFIRST, I would like to delve into the key concepts presented:
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NRE vs NRO Account: Purpose
- NRE Account: Functions as a bank account for transferring foreign earnings to India in Indian rupees.
- NRO Account: Used as a savings account to manage income earned in India, including pension, rental income, dividend income, etc., in Indian rupees.
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Repatriability:
- NRE Account: Deposits and interest earned are fully repatriable without limitations.
- NRO Account: Repatriation is subject to limits, allowing up to USD 1 million in a financial year after fulfilling tax obligations.
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Taxability:
- NRE Account: Deposits are tax-free, including both principal amount and interest earned.
- NRO Account: Interest earned is subject to Tax Deductible at Source (TDS).
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Account Holding:
- NRE Account: Can be held jointly by two NRIs or an NRI and a resident Indian citizen.
- NRO Account: Can be opened by an NRI along with an Indian citizen or other NRIs.
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Fund Transfer:
- NRE Account: Allows funds transfer between NRE accounts, from NRE to NRO accounts, and to resident accounts.
- NRO Account: Permits transfer only to another NRO account or a resident account, excluding NRE accounts.
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Exchange Rate Risk:
- NRE Account: Affected by exchange rate risks due to fluctuations and conversion losses/gains.
- NRO Account: Less likely to be impacted by daily exchange rate fluctuations but not entirely immune.
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Choosing Between NRE and NRO:
- The decision should align with the NRI's unique needs and income sources.
- NRE for storing foreign currency converted to Indian rupees, while NRO for managing both foreign and domestic income.
- NRO accounts have a repatriation limit of up to USD 1 million per financial year.
In conclusion, the expertise shared in this article is in line with my extensive knowledge of NRI financial instruments. It's crucial for NRIs to make informed decisions based on their individual financial circ*mstances. As mentioned, IDFC FIRST Bank offers NRI savings accounts with both NRE and NRO options, providing a comprehensive solution for managing foreign direct investments. However, it's essential for readers to consult with their financial advisors before making any decisions, as financial landscapes are subject to change.
