Difference between NRE and NRO accounts
What do you mean by NRO account?
NRO or (Non Resident Ordinary) is an INR account. It has a rupee denomination, and it can be operated either as a Fixed Deposit/recurring deposit/savings account.
This type of bank account allows you to transfer money from any bank account.
Note: NRO account can be opened by a person or Indian origin and also by any overseas citizen of India.
Also, it needs to be noted here that all the repatriations made through the NRO account need to be reported to RBI using the official forms.
Note: Interest earned from NRO account is NOT tax-free. Under the current laws, it would be taxed at a rate of 30.9 %.
NRO Account: Advantages
- It has a nomination facility available with residents Indians as well.
- It has a facility of a Joint account with an Indian resident and also with an NRI.
- The interest rate earned on the NRO account may vary from bank to bank. So depending on your particular bank you may end up earning a better rate as compared to your peers.
NRO Account: Disadvantages
- Funds cannot be transferred to an NRE account.
- 1 Million USD is the maximum repatriation amount per financial year.
- The interest earned can be repatriated only after tax payment.
- Interest is taxable in India, at a high rate.
What are the things you should do after you become an NRI ?
What do you mean by NRE account?
Non-Resident External account is an INR denomination account, meaning that the funds in this account would be maintained in INR only. The account can be a fixed deposit/ term/ recurring deposit account.
The benefit of this account is that the funds can be easily transferred to any bank account in any country without any difficulty.
Note: NRE account can be held as a joint account provided the other account holder is also an NRI. Also, it’s important to note that the interest earned on the deposits is not taxable in India.
Depositing of cash is not allowed on this account unless it is obtained as a settlement from abroad or from another NRE account.
NRE Account: Advantages
- Interest earned from this account is not taxable in India.
- Funds are completely repatriable.
- Joint account facility available.
- Funds can be transferred to an NRO account.
- Nomination can be appointed for this account.
NRE Account: Disadvantages
- INR deposits cannot be made.
- A joint account can only be opened between NRIs.
Note: You can transfer funds from NRE to NRO account, but the reverse is not possible.
Which one should you open an NRE or NRO account?
Both the accounts have a few minor differences so based on your needs you can decide which one you wish to open.
If you want to foreign currency in India, wish to transfer that money to another country, wish to some cash in INR, or if you wish to have a joint holding account then you should go for an NRE account.
On the other hand, if you wish to maintain your earnings in India, like rental income, dividends or interest etc, you wish to have a resident Indian as a joint holder, or you do not plan on taking your money to any foreign country then you should go ahead with an NRO account.
Tip: If you open both NRE and NRO account at the same time, you will save on a lot of paperwork later and you can then operate any account as per your wish.