The Indian banking system has outstanding accounts for Non-Resident Indians. You will be eligible as an NRI if you have lived outside India for 183 days or more. It can even be fragmented in one full fiscal year.
If you qualify as an NRI, you have the option of maintaining INR either in a Non-Resident External Rupee Account (NRE Account) or Non-Resident Ordinary Rupee Account (NRO Account). However, you need to understand the difference and the working of these accounts before you can choose which account you should opt for.
However, if your country of residence is Bangladesh or Pakistan, you’d require prior approval from the Reserve Bank of India.
Differences between NRE and NRO accounts can be understood by analysing the below following factors. Please read carefully.
- Scope of the Earnings in the Account
The NRE bank account is for funds that have been earned abroad. Thus, these funds can be transferred to India and held in INR currency. The NRO account is for funds made by an NRI in India – for example – rent from a property in India, sale of a vehicle in India, etc. These funds are also held in INR currency only.
- Tax Quotient
The funds in the NRE account have no tax liability in India. This is because these funds are earned and accrued abroad and are taxed in the foreign country. Taxing it again in India would mean double taxation and hence these funds are not taxed. The NRO account funds are fully taxable in India as these are funds that have been earned here and therefore are regulated by the tax laws of this country.
- Transfer of Funds
The NRE account funds can be fully transferred, back to the country of your residence without any limit. The reason is that these funds were originally abroad and hence can be sent back anytime. The NRO account funds, on the other hand, have a limit of only 1 Mio USD per year that can be transferred or repatriated in one fiscal year.
- Currency Risk
As the funds in the NRE account are transferred from abroad to India, they face the currency exchange rate and hence have an exchange risk associated with them. The NRO account, on the other hand, does not have any exchange risk as these funds are earned in the INR currency and held in INR currency only.
The deposits made out of the NRE account can only be made for a specific tenor. A minimum of 1 year and a maximum of 3 years is permissible. The deposits made out of the funds in the NRO account, however, can be made for any tenor and are just like the deposits made in any Indian bank account.
In conclusion, the Indian banking system offers these two accounts for the NRIs. The growing competition among the private and public sector banks ensures that the NRIs have many options to choose from.