NRE Vs NRO Accounts: A Complete Guide For NRIs

Managing finances as a non-resident Indian (NRI) can be challenging, especially when dealing with income from multiple sources in India and abroad. do not permit ordinary savings accounts for NRIs because their tax status changes once they become non-residents.
To address these challenges, banks have two specialised accounts for NRIs: the non-resident external (NRE) account and the non-resident ordinary (NRO) account. These accounts offer NRIs a secure, compliant as well as an efficient way to manage their money in India.

What Is An NRE Account?

An NRE account is a rupee-denominated account that is designed for NRIs to park their foreign earnings in India. This account can be in the form of a savings, current, recurring, or fixed deposit account.
Key Features Of NRE Account
Here are the key features of an NRE account:

Currency Conversion: The funds are deposited in the foreign currency and converted into rupee.
Tax Benefits: The interest earned is totally tax-free in India.
Repatriation: Either the principal or the interest can be easily transferred to an international account free of any restrictions.
International Access: An international debit card facilitates global transactions and withdrawals.
Usage: It is best suited for personal banking, business transactions, or investments, such as mutual funds.
It is also important to remember, however, that only earnings made abroad can be deposited in an NRE account.

What Is An NRO Account?

An NRO account is specifically designed for the management of income generated in India. This is a rupee-denominated account that accepts earnings from property rentals, dividends, pensions, or any other source in India.
Key Features Of NRO Account
Here are the key features of an NRO account:

Multi-Source Deposits: Accepts deposits in both Indian and foreign currencies.
Tax Deduction: Interest earned is subjected to tax deducted at source (TDS) under Indian tax laws.
Repatriation Limit: It allows transfer up to USD 1 million per financial year, as long as the documentation requirements are met.
Joint Account Options: It can be opened jointly with another NRI or a resident Indian.
Flexibility: It allows payments for local expenses, investments, and loans in India.

Taxation On NRE And NRO Accounts

Tax treatment is one of the most critical factors when choosing between an NRE and NRO account.
NRE Account: The interest income earned from an NRE account is tax-free in India. This brings considerable tax benefits to NRIs to save and grow their overseas earnings in India without being taxed.
NRO Account: The interest income earned from NRO accounts is taxable in India, and TDS is applied at rates between 10 per cent and 30 per cent. However, NRIs can benefit from double taxation avoidance agreements (DTAA) to reduce their tax burden. For this, they need to submit Form 10F, a tax residency certificate, and other required documents to the bank.

Opening NRE Or NRO Accounts

This is the list of documents required to open an NRE or NRO account.
▪ Valid Passport and Visa.
▪ Proof of NRI or NRO status (employment or residence permit).
▪ PAN card or Form 60.
▪ Recent photos.

Choosing The Right Account

Your choice between an NRE and NRO account will depend on your financial needs and income sources. You should choose an NRE account if you earn solely abroad and want tax-free interest on your deposits, unlimited fund transfers to and from India, or you require an account for investments and personal banking in India.
On the other hand, you should go for an NRO account if you earn income from sources in India, such as property, dividend income, or pension, or, if you want to pay for local expenses in Indian currency, and if you agree on being capped at a certain amount on your repatriation limit.
India received record remittances of USD 125 billion in 2023, according to the World Bank, with a substantial amount routed through NRE and NRO accounts. These accounts aid in smooth transfer and also play a vital role for India’s foreign exchange reserve.
NRE and NRO accounts are the best instruments for the NRIs to handle finances in a prudent manner while staying in conformity with Indian regulations. NRE accounts are most suitable for parking foreign earnings tax-free and free from any repatriation restrictions. NRO accounts are most suitable for handling Indian income, though with tax implications. Your account selection would depend upon the sources of your income and your goals.