NRE Vs NRO

Given the changes in economic structures and employment opportunities, the number of NRIs (Non – resident Indians) has increased significantly over the past few years. They are people of Indian origin settled in foreign countries who have permanently migrated to some other country for employment and who reside in India for less than 182 days in a financial year are called the NRIs.

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

NRIs have to open NRE or NRO accounts if they want to do financial transactions in the country. The main purpose of these types of accounts is to help the NRIs manage their money, earned in and out of India. NRE, NRO, and FCNR are the different types of NRI accounts that help them manage their finances between India and their residential country conveniently.

The facility of NRE and NRO bank accounts are made available for NRIs keeping in mind the fact that maximum of them don’t shift with their families. Therefore, it becomes apparent that most NRIs have dependent families residing in India.

The different NRI accounts enable them to send money in a hassle-free, secure manner to their dependent elderly parents or family members to support them. Let us know more about these accounts.

What is An NRE Account?

Non- resident External account is abbreviated as an NRE account. These are Indian rupee accounts opened by NRIs in India. The main purpose of these accounts is that they enable the account holder to deposit money in foreign currency. The account holder can withdraw money from his/her NRE account. Other than that, his/her family members, or whoever has access to the account in India can withdraw money. This type of account is most commonly used because countless NRIs send money to their families in India.

The account automatically converts the deposited money into the Indian rupee and it can be easily withdrawn in the Indian rupee (INR). It can be used as a savings account by the NRIs, where they can bask in their earned money in the form of savings.

The best benefit is that the balance money and the interest earned on the accounts are completely tax-free. The best way for an NRI to save money on taxes is to open an NRE account

Also, it doesn’t mean that the money deposited in this account in the form of foreign currency cannot be used by the account holder. He/she can transfer the money back to their foreign accounts if needed. It would again be conveniently converted from INR to the desired currency. All these processes are free of restrictions and free of charge. It ensures a higher level of fluidity of money. These accounts can also be used for business purposes or for investing money in India.

There are two restrictions when it comes to NRE accounts:

The account has to be opened by an NRI only. He/she will have to provide legitimate proof that they are NRI, such as VISA, work permit, etc.
The money deposited in the account has to be strictly earned outside India.

What is An NRO Account?

NRO in the expanded version is a non-resident ordinary account. Like the NRE accounts, it is also an Indian rupee account. This type of account is for those NRIs who have a source of income in India and want to save that money. This income can be in the form of rents, dividends, etc. Money can be deposited in foreign as well as Indian currency but can be withdrawn only in the Indian currency.

The best benefit of an NRO account is that money earned in India by an NRI can be saved in India. It can be used as a savings or a current account. Other than the fact that an NRO account has to be opened by an NRI after he/she submits valid proof of being an NRI, this type of account has a few more restrictions, such as:

The fluidity of money is less as repatriation of the money is chargeable.
The balance money and the interest earned on the account are taxable.
The provision of transferring money from one NRO account to an NRE account is not there.

Similarities and Dissimilarities between NRE and NRO Accounts

Both NRE and NRO accounts are designed to help the NRI citizens in simplifying the management of their earnings in and outside of India. Hence, they reduce the confusion of managing several accounts and keeping track of them. However, NRE and NRO accounts have some similarities and dissimilarities. Let's have a look at the similarities first:

Both these accounts have to be opened by non – resident Indians only.
They both are completely safe.
They are both Indian rupee accounts and money can be withdrawn from them only in the Indian currency.
They automatically convert the deposited foreign currency into INR and back to the foreign currency if the money is repatriated.
The minimum balance for both these accounts should be maintained at INR 75,000.

NRE and NRO accounts are different in many ways and the following are the dissimilarities between them:

NRE accounts will accept money that is strictly earned outside India. While NRO accounts accept money that is earned outside India, as well as, that is earned in India.
NRE accounts allow the transfer of money from one NRE account to another and as well as to an NRO account or some other foreign account. On the other hand, money from an NRO account can only be transferred to another NRO account.
Repatriation of money in NRE accounts is completely free and has no limits. On the other hand, the NRO account has a restriction of repatriating not more than 1 million USD, per financial year, inclusive of taxes. Therefore, the fluidity of money is more convenient in NRE accounts.
The deposits made in NRE accounts are free of any form of taxes. NRO accounts on the other hand are taxable at 30%.
If someone wants to open a joint NRE account, it has to be opened in partnership with another NRI only. Meanwhile, NRO accounts allow joint account openings where only one partner can be NRI. The other partner could be a resident of India or another NRI.
The money deposited in NRE accounts is affected by the value of the currency against one another. This is called conversion loss and can lead to loss of money. On the other hand, NRO accounts are unaffected by fluctuations in the value of currencies.

NRE vs NRO

	Non – Resident External Account (NRE)	Non – Resident Ordinary Account (NRO)
Basic difference	These accounts only accept a deposit of money that is earned outside India.	These accounts accept a deposit of money that is earned outside of India as well as in India.
Account holder restrictions	Only NRIs can open NRE accounts after producing valid proof of being an NRI.	Has to be opened by an NRI only after submitting valid proof of NRI status.
Joint account facility	A joint account can be opened but the partner also has to be an NRI.	A joint account can be held by two NRIs, or one NRI and a native Indian citizen.
Who should open?	NRIs with no income-generating asset or income source in India.	NRIs whose income sources include both – foreign earnings as well as Indian earnings.
Tax benefits	Free of all taxes.	The principal amount and interest earned on the account are taxable at 30%.
Repatriation	Any amount of money can be repatriated freely between NRE accounts and personal foreign accounts.	Not more than 1 million USD can be repatriated in one financial year.
Charges on repatriation	No charges applied.	Repatriation is chargeable in NRO accounts.
Currency conversion	Automatically converted into INR on deposit.	Converted into INR automatically.
Risk of currency conversion loss	Risk is there.	Remains unaffected by such things.
Deposit denomination	A deposit will be accepted only in foreign currency.	Deposit in foreign as well as Indian currency is acceptable.
Withdrawal denomination	Money can be withdrawn in INR only.	Only INR withdrawal.
Transfer of money	Money can be transferred from one NRE account to another NRE account as well as to an NRO account, or some other foreign accounts.	Money can be transferred between two NRO accounts or to some foreign account. Money transfer to NRE accounts is not possible.

How to Choose Between Opening NRE or NRO Account?

A citizen can have one NRE or one NRO or both NRE and NRO accounts at the same time. it all depends upon his/her requirements. If an NRI’s income only includes earnings in foreign currency, then an NRE account should be suitable for him/her. An NRI who has no asset or income source in India, and is sure that he will not do many financial transactions within India, other than withdrawing money, should choose to open an NRE account. It would save them from taxes. An NRE account is best suitable for any citizen whose income is coming completely from foreign sources.

On the contrary, if an NRI has an income-generating asset in India or is required to do financial

transactions in India, other than just withdrawing or sending money to their families, should

choose an NRO account. They won’t have the choice of avoiding taxes but given the fact that

their income is mixed of foreign sources and Indian sources, NRO accounts are best suited for

them. The choice should mainly depend upon the requirements of the citizen.

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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).