Understanding the Difference between NRE and NRO Account
As an NRI, having a bank account that suits your needs is crucial. The two most popular types of bank accounts for NRIs are the Non-Resident External (NRE) account and the Non-Resident Ordinary (NRO) account. While both serve the same purpose of allowing NRIs to manage their finances in India, there is a fundamental difference between the two. Let’s take a closer look.
What is an NRE account?
An NRE account is a bank account that NRIs can open to hold their foreign income, which they want to repatriate. The account is maintained in Indian rupees, and the funds deposited in it are fully and freely repatriable, which means you can easily convert them into foreign currency and transfer them abroad.
One of the primary benefits of an NRE account is that the funds deposited in it are exempted from tax in India, making it an excellent choice for NRIs looking to invest their foreign income in India. Besides, NRE accounts offer various investment options, including deposits, mutual funds, and securities.
What is an NRO account?
On the other hand, an NRO account is a bank account that NRIs can open to manage their income earned in India. This can include income from rent, dividends, pension, etc. The funds deposited in an NRO account cannot be repatriated entirely, and there are restrictions on the amount that can be transferred overseas.
Unlike an NRE account, the funds deposited in an NRO account are subject to tax in India. However, you can claim a tax credit on your foreign income tax return under the Double Taxation Avoidance Agreement (DTAA) between India and your current country of residence.
Conclusion
In summary, NRE and NRO accounts serve different purposes and have different features. If you are an NRI and want to hold your foreign income and repatriate it, an NRE account may be the right choice for you. On the other hand, if you want to manage your income earned in India, an NRO account is the best option. It’s essential to understand your financial goals and choose the right account that meets your needs.
Table difference between nre and nro account
| Parameter | NRE Account | NRO Account |
|---|---|---|
| Full Form | Non-Resident External Account | Non-Resident Ordinary Account |
| Account Type | Credit Account | Debit Account |
| Interest Income | Not taxable in India | Taxable in India |
| Repatriation | Funds can be freely repatriated outside India | Only up to $1 million can be repatriated in a financial year |
| Deposit Currency | Only in foreign currency | Both foreign and Indian currency |
| Mode of Operation | Joint accounts allowed with non-resident Indians | Joint accounts allowed with both resident and non-resident Indians |