When it comes to managing your hard-earned money, banks are safe havens. Not only do they keep your money safe but also offer interest on your deposits. While managing earnings for Indian residents are somehow simple, so is not the case with Non-Resident Indians (NRIs).
NRIs often face problems in managing their earnings that may include earnings originating from abroad and in India. This is because as per FEMA guidelines of RBI, NRIs are not allowed to have a regular savings bank account in their name in India. It is mandatory for them to close or convert their account to NRO and/or open new NRE accounts. These are also known as NRI accounts. Opening an NRE and NRO account can help NRIs in two ways – one, they can transfer and manage their foreign earnings in India and two, they can repatriate funds from India to their home country.
Now, some of the questions that may come to mind are: what are the key differences between NRE and NRO savings bank accounts and how can you make the right choice between these two?
Let’s find out.
What is an NRE Savings Account?
A Non-Residential External or NRE savings account allows NRIs to park their foreign earnings in India. The funds in this account are managed in Indian Rupees. Other than a savings account, NRIs can open an NRE account in the form of a current, recurring, or fixed deposit account. The condition with this account is that you are allowed to deposit amounts earned outside of India. Besides, the account holder gets an international debit card that allows them to transact and withdraw money anytime, anywhere, both in India and abroad. An NRI savings bank also allows the account holder to make mutual funds & other investments also in an effortless manner. NRIs can open this account jointly with another NRI or a resident Indian close relative. The interest earned on the NRE savings account is exempt from tax in India and funds can be repatriated overseas without any restrictions.
What is an NRO Savings Account?
A Non-Resident Ordinary or NRO savings account allows NRIs to manage their earnings, originating from India. The funds in this account are managed in Indian Rupees. The account holders can deposit, withdraw, and manage their funds in a hassle-free manner. This account permits deposits in both Indian and foreign currencies. Besides a savings bank account, an NRI can open a current account, recurring account, and fixed deposit account. With a savings bank account, the account holder gets a domestic debit card for access in India. NRIs can open this account jointly with another NRI or a resident Indian close relative. The interest earned on the NRO savings account is taxed @30% along with the applicable surcharge and cess, and funds can be repatriated overseas up to USD 1 million per financial year.
Difference Between NRE and NRO Accounts
In the case of NRE accounts, funds are fully and freely repatriable. This includes both the principal and the interest amount. However, in the case of NRO accounts, access to repatriation is limited. As per RBI’s directive, NRIs cannot repatriate more than 1 million USD or equivalent per financial year. The interest earned in an NRO savings account is fully repatriable after the payment of tax. Plus, it requires the account holder to obtain a certificate from a CA.
An NRE savings bank account is exempt from tax in India. However, the interest earned in an NRO savings bank account along with deposits is subject to a tax of 30 per cent, plus applicable surcharge and cess. Under the Double Taxation Avoidance Agreement (DTAA), NRIs can avail of the reduced tax benefit.
Points to Consider while Choosing between an NRE and NRO Savings Account
To make the decision process simpler, here are some quick pointers to consider:
- Allow managing only overseas earnings in Indian Rupees.
- Come with an international debit card to withdraw/transact anytime, anywhere.
- Funds, both interests earned and principal, are fully and freely repatriable.
- The interest earned on the NRE savings account is exempt from tax in India.
- Allow managing only India-based earnings in Indian Rupees.
- Allow deposits in both foreign and Indian currencies.
- Come with a domestic debit card for access in India.
- Funds are subject to tax in India.
- Repatriation up to USD 1 million per financial year for all bonafide purposes.
Now that you are aware of the differences between both these account options, you can choose if you want to go with an NRI NRE or NRO account.