Non Resident Indians (“NRI”) are often faced with the situation of maintaining an Indian rupee account. Primarily, there can be two reasons for opening such account: NRI wants to repatriate overseas earned money and / or NRI wants to keep India based earnings in India such as rent, dividend income, etc. There are two options available with NRI interested in opening bank account in India – Non Resident Rupee Account (“NRE”) or Non Resident Ordinary Rupee account (“NRO”).
Similarities between NRE and NRO accounts:
Both accounts can be opened as savings, fixed or recurring deposit account, current accounts. One needs to maintain an average monthly balance of INR 75,000 in both NRE and NRO accounts.
Characteristics of NRO Account:
- A NRI, person of Indian origin (PIO) or an overseas citizen of India (OCI) can maintain NRO account to manage income earned in India or collect remittance from abroad.
- Income maintained in this account can be in the form of remittance from abroad, rent, dividends, gifts or loans made by residents.
- Tax is charged on interest in NRO account as per Income Tax Act, 1961.
- In NRO accounts, foreign funds and Indian funds can be deposited but withdrawals shall be in Indian currency only.
- Holder of NRO account cannot transfer money to NRE account; however transfer to another NRO account is permissible.
- Account is not exposed to exchange loss and conversion loss.
- Balance within account can be repatriated up to $1 million, net of applicable taxes in one financial year.
- Account can be held jointly with NRIs as well as PIOs.
- In terms of operating of the account, NRIs can jointly hold an NRO account with residents provided the residents hold the power of attorney.
- Transfer from NRO account to NRE account is now allowed subject to RBI rules, however transfer of NRO to another account is freely allowed.
- Rate of interest in NRO account is comparatively higher than in a NRE account.
Characteristics of NRE Account:
- Any PIO or an OCI can maintain NRE account to manage income earned in India or collect remittance from abroad.
- Income maintained in this account can be bank interest, rental income, dividend income or any income from investment made in India.
- Interest earned in NRE account is tax free.
- In NRO accounts, only foreign funds can be deposited and withdrawals shall be in Indian currency only.
- Holder of NRO account can transfer money to NRE Account and / or NRO account.
- These accounts are exposed to exchange loss and conversion loss.
- Balance within account can be remitted abroad only in a few specified conditions.
- The account can be opened both singly or jointly with other NRIs or PIOs. NRE Account cannot be held jointly with resident Indian.
- In terms of operating of the account, NRIs are also allowed to hold a joint account with an Indian resident; however, this is subject to relative holding the power of attorney from the NRI concerned.
- An NRE account allows transferring funds to both NRE account and NRO account.
- Rate of interest in NRE account is comparatively lower than NRO Account.
We can deduce, if your total income includes income earned in India and you want to manage it within the country, you can opt for an NRO account or NRE account can be opened if you want to transfer your foreign income to India and want to avoid taxation liabilities.
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