With so many different types of products and accounts available in the market, you can find yourself a little confused and hassled as to what product to opt for. Knowing better about the many available choices can help you make an informed decision. It also helps if you are able to differentiate between the various available avenues. That way, you can better choose for yourself where to invest all your hard earned money. You can generate better returns on your money, based on your preferences and requirements.
Non-Residential External (NRE) and Non- Resident Ordinary (NRO) Accounts are the two major categories of accounts available for you, as an NRI. They happen to be amongst the most popular options if you wish to save money in India.
What is the difference between NRE and NRO Accounts?
The following table summarizes the difference between NRE and NRO Accounts-
Basis | NRE Accounts | NRO Accounts |
Definition | An account that helps you park your foreign earnings in India, in Indian denomination. | An Account that helps you park your earnings from India in Indian Denomination. |
Taxation | Deposits inNRE accountsare Tax-Free, i.e. the principal amount, and the interest earned thereon, is exempt from tax. | The interest earned in NRO accounts is subject to TDS or Tax deductible at Source. |
| Money from NRE accounts is freely repatriable i.e. both the Principal amount and interest earned are freely and completely transferable. | Funds from the NRO Accounts can be repatriated post payment of applicable taxes with a limit of USD 1 million in a financial year. |
Suitable Conditions | You should opt for NRE Accounts if you want to hold or maintain your overseas earnings in Indian currency. NRE Accounts are also suitable if you wish to keep your savings liquid. | You should opt for NRO Accounts if you want to save your earnings from India in Indian currency itself. These earnings could include rent, income, dividend, sale of Property etc. |
Holding Structure | You can open an NRE account with another NRI and close relative Resident Indian. | You can open an NRO account with an NRI as well as any Indian resident. |
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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances.
As a seasoned financial expert with a comprehensive understanding of the intricacies surrounding Non-Residential External (NRE) and Non-Resident Ordinary (NRO) accounts, let's delve into the concepts highlighted in the article and shed light on the key differences between these two major categories for NRIs.
NRE Accounts:
- Definition: An NRE account is designed to facilitate the parking of foreign earnings in India, denominated in Indian currency.
- Taxation: Deposits in NRE accounts are tax-free, meaning both the principal amount and the interest earned are exempt from taxation.
- Repatriability: NRE accounts offer complete repatriability, allowing the transfer of both principal and interest without any restrictions.
- Suitable Conditions: Opt for NRE accounts if you aim to hold or maintain your overseas earnings in Indian currency. They are also suitable for those who wish to keep their savings liquid.
- Holding Structure: NRE accounts can be opened with another NRI or a close relative who is a Resident Indian.
NRO Accounts:
- Definition: An NRO account is intended for holding earnings generated in India, denominated in Indian currency. This includes income from rent, dividends, sale of property, etc.
- Taxation: The interest earned in NRO accounts is subject to TDS (Tax Deductible at Source).
- Repatriability: Funds from NRO accounts can be repatriated after the payment of applicable taxes, with a repatriation limit of USD 1 million in a financial year.
- Suitable Conditions: Opt for NRO accounts if you want to save your earnings from India in Indian currency itself.
- Holding Structure: NRO accounts can be opened with an NRI as well as any Indian resident.
Key Differences Summarized:
- Nature: NRE accounts deal with foreign earnings, while NRO accounts handle earnings generated within India.
- Tax Treatment: NRE accounts offer tax-free deposits, whereas NRO accounts are subject to TDS on interest earned.
- Repatriability: NRE accounts allow complete repatriation, while NRO accounts have limitations with repatriation subject to applicable taxes.
- Suitability: Choose NRE accounts if you want to maintain overseas earnings in Indian currency and keep savings liquid. Opt for NRO accounts if you want to save earnings from India in Indian currency.
In conclusion, understanding the nuances of NRE and NRO accounts is crucial for making informed investment decisions as an NRI. Each type serves a specific purpose, and the choice depends on individual financial goals and preferences. Always seek personalized advice based on your unique circ*mstances before making financial decisions.
