Bhagyashree is a non-resident Indian (NRI) living in the UK. Her business is doing well there. She has a dependent mother in India to take care of and transfer money to her non-resident external (NRE) account regularly. Also, her non-resident ordinary (NRO) account gets credited routinely.
Bhagyashree’s care towards her mother made her co-worker, Andrea, curious. She wanted to know more about such accounts that Bhagyashree was managing despite living away from India. Here’s how Andrea’s queries were dealt:
| Base | NRE Account | NRO Account |
| Meaning | It is an account for an NRI to move foreign earnings to India | It is an account for an NRI to supervise the income earned in India |
| Abbreviation | Non-Resident External Account | Non-Resident Ordinary Account |
| Repatriate | Yes | The interest amount can be repatriated whereas the principal amount can be repatriated within the set limits |
| Taxable | Interest earned gets exempted from taxes. | Interest earned is taxable. |
| Joint account | Two NRIs can jointly open the account. | An NRI can open it with an Indian citizen or another NRI |
| Deposits & withdrawals | Deposits can be made in foreign currency and withdrawals in Indian currency. | Deposits can be made in foreign as well as Indian currency. Withdrawals in Indian currency can be made. |
| Exchange risk | Yes | No |
However, Andrea still was not satisfied with Bhagyashree’s explanation. So, she clarified further:
- NRE account is opened in India to deposit the NRI’s foreign earnings. An NRO account is opened in India by the NRI, to manage the income earned by the person in India. These incomes include dividend, pension, rent, interest, etc.
- NRE accounts are tax-free. The balance in the account and the interest gained on these accounts are exempted from tax. The interest in an NRO account is taxed as per the Income Tax Act 1961.
- The principal amount in an NRE account and the interest accumulated can be repatriated. It means you can transfer the funds to a foreign account in an NRE account. In NRO account, the interest amount can be repatriated; however, the principal amount, you can transfer funds only up to USD 1 million in a fiscal year.
- Income generated outside India can be deposited into any of these accounts. However, revenue generated within India can be transferred only in the NRO account. Withdrawals in both kinds of accounts can be made only in Indian currency.
- In case of an NRO account, if the deposit, as well as the withdrawal, is made in Indian rupees, there is nil exchange rate risk involved; whereas, in case of an NRE account, currency instabilities can expose you to exchange rate risks.
You can opt for an NRO account if your total income includes income earned in India and you want to manage it within the country. If you wish to transfer your foreign income to India and avoid taxation liabilities, an NRE account is ideal. You can avail higher returns on your money, based on your preferences and needs. With banks offering excellent NRI banking services in India, it is an easy task to open a bank account.
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