Understanding NRE and NRO Accounts for NRIs
NRE and NRO accounts help NRIs manage finances in India. NRE is tax-free and fully repatriable, while NRO is taxable with repatriation limits for Indian income sources.
When you move abroad and attain NRI (Non-Resident Indian) status, you can no longer operate a regular resident savings account in India. To effectively manage your finances within the country, you must opt for specialized NRI accounts. Two of the most common options available are the Non-Resident External (NRE) Account and the Non-Resident Ordinary (NRO) Account. These accounts allow NRIs to save money in India while catering to different financial needs.
What is an NRE Account?
An NRE (Non-Resident External) Account is designed for NRIs who want to deposit their foreign income in India. The funds in this account are maintained in Indian Rupees and are completely repatriable, meaning both the principal and interest can be transferred abroad without restrictions. Additionally, the interest earned on this account is tax-free in India. This account is beneficial for NRIs who wish to manage and invest their overseas earnings while keeping their funds liquid.
What is an NRO Account?
An NRO (Non-Resident Ordinary) Account is primarily used for managing income earned within India, such as rental income, dividends, or pension. Unlike an NRE account, an NRO account is subject to taxation, and the interest earned is subject to TDS (Tax Deducted at Source). Repatriation of funds is allowed but comes with a limit of USD 1 million per financial year, subject to applicable taxes. This account is useful for NRIs who continue to have financial inflows from Indian sources.
Key Differences Between NRE and NRO Accounts
The table below highlights the major distinctions between these two account types:
|
NRE Account
|
NRO Account
|
|
Allows NRIs to deposit foreign earnings in India, converted into Indian Rupees.
|
Helps NRIs manage income generated within India, such as rent or dividends.
|
|
The principal and interest earned are completely tax-free in India.
|
Interest earned is taxable in India and subject to TDS.
|
|
Both the principal and interest are fully repatriable without restrictions.
|
Funds can be repatriated after tax payments, with a maximum limit of USD 1 million per financial year.
|
|
NRIs wanting to maintain overseas income in Indian currency with easy liquidity.
|
NRIs managing earnings from Indian sources such as rent, dividends, or property sales.
|
|
Can be jointly opened with another NRI or a close relative who is a Resident Indian.
|
Can be held jointly with either an NRI or an Indian resident.
|
By understanding the differences between NRE and NRO accounts, NRIs can make informed financial decisions based on their income sources and repatriation needs.