NRIs have the opportunity to open two types of Indian bank accounts. They can either open an NRI or an NRO account. While they are different from one another, people often confuse these accounts to be the same. We have performed a comprehensive NRE Vs NRO account analysis to help you understand their differences in detail.
What is an NRE account?
If you compare NRE Vs NRO, you will understand that a Non-Resident External Account enables you to convert your foreign income into an Indian denomination at the time of deposit. Therefore, you can deposit your funds to an NRE account in any foreign currency and withdraw it in Indian rupees.
What is an NRO account?
By comparing NRE vs NRO account, you will realize that a Non-Resident Ordinary Account is for an NRI to manage their earnings in India. The earnings can be in the form of rent, pension, dividends, and more. You will be able to receive funds in an NRO account in either Indian or foreign currency.
Explanation: Difference between NRE & NRO accounts
Both NRE and NRO accounts are opened by NRIs. But you will come across significant differences between NRE and NRO accounts. Some of the most prominent differences are as follows:
● Purpose
The first NRE and NRO account difference is in terms of their purpose. An NRE account is useful for transferring foreign earrings to India in rupees. An NRO account serves as a savings account for managing income earned in India by an NRI.
● Repatriability
Another difference between NRE and NRO accounts is in terms of repatriability. Deposits in an NRE account are fully repatriable, including the interest. But NRO accounts come with repatriation limits. In a financial year, NRIs can repatriate only up to Rs 1 million from an NRO account.
● Taxation
In the debate of NRE vs NRO accounts, NRE accounts are the clear winner because of their tax exemption. The principal, as well as the interest in an NRE account, are exempted from taxes. On the other hand, interest in an NRO account attracts TDS.
● Fund Transfer
The funds from an NRE account can be transferred to another NRE, NRO, and resident account. But the funds from an NRO account can only be transferred to another NRO or resident account.
● Account Holding
Both NRE and NRO accounts can be jointly opened by two NRIs. Moreover, these accounts can be opened by one NRI and one Indian citizen.
● Exchange Rate Risk
The funds in an NRE account are free from exchange rate fluctuations as well as conversion gains and losses. Meanwhile, the funds in an NRO account are not usually affected by daily exchange rate fluctuations. But it is not always free from risk because foreign income can also be transferred to NRO accounts.
How Do I Choose Which Account to Open for Myself?
Once you understand the difference between NRE and NRO accounts, you will be able to make the right choice. An NRE bank account is perfect for storing foreign currency by converting it into Indian rupees. On the other hand, your NRO account will be solely useful for managing your income in India while you are staying abroad.
Conclusion
You should carefully consider the difference between NRE and NRO accounts before opening one that suits your interest. Remember that there is no right or wrong in this case because your decision should be based on your unique needs and income sources.
