Living abroad is a dream and an opportunity for many Indians today. Managing your money in India when abroad is a bit challenging as you are supposed to operate through NRO, NRE bank accounts rather through typical savings or current accounts. Know more on what and how different they are?
If you are an NRI, you can have two types of bank accounts in India - the Non-Resident Ordinary (NRO) and Non-Resident External (NRE) account. According to Foreign Exchange Management Act (FEMA) guidelines, an NRI cannot have savings account in his or her name in India. NRE and NRO accounts are designed in such a way that you can send income earned abroad to India, park Indian income or remit such income abroad.
These can be used to support family, parents, relatives, for purposes of investment, for investing in properties or to manage income arising out of India. In case of both the NRE and NRO account, you can open a savings account, current account or a fixed deposit account. However, there are some basic differences between NRO and NRE accounts which you need to be aware of so that you can choose the right account to suit your needs. Let us take a look.
As an NRI you can have income arising either in India or in the country where you reside. An NRE account is mean to park your foreign income in India, in Indian rupees. When you deposit foreign currency into a NRE account, it is converted into Indian rupees at current exchange rates. On the other hand, an NRO account helps you manage the income earned in India, in Indian rupees.
The other important different between NRO and NRE account is the taxation aspect. The interest earned in the NRO account is taxable at 30 per cent, deducted at source.
However, any deposit made to the NRE account is tax free in India but would participate the taxation in your host country (country where you live outside of India). In other words, both the principle amount and the interest earned on the same is not subject to tax.
This is another important area of difference between NRO and NRE accounts. NRO accounts come with limited repatriation features. You can remit the interest freely. However, there are restrictions when it comes to remittance of the principle amount. You can remit a maximum of up to USD 1 million from your NRO account every year, only after you have paid all the applicable taxes.
On the other hand, funds from the NRE account are freely repatriable without any limits.
An NRO account lets you transfer funds to another NRO account only. You cannot transfer funds from a NRO account to a NRE account. However, you can transfer money from a NRE account to another NRE account and also to a NRO account.
NRO accounts are not subject to any currency risk. NRE accounts, on the other hand, can be affected by the fluctuation of the India rupee against a foreign currency at the time of money transfer.
An NRO account can be jointly held by two NRIs or with an Indian resident who is a close relative. A NRO account serves two main purposes- one is to deposit any income that arises in India whether it be rental income, income from dividends and so on. It can also be used to make any payments that you need to make in India.
However, NRO account is not suitable if you want to send money out of India.
An NRE account on the other hand can be opened jointly only with an NRI. It works for you if you want to be able to send your foreign earnings to India and have it back when required without any restrictions. You can link your NRE account with a trading and investment account and invest money in India or even keep your money in NRE deposits. You can also authorise a person in India to operate the account on your behalf. One can also make bill payments in India through the NRE account.
At times, you need both the accounts to operate your assets and convenience of free money movements across the borders or just one for your specific needs. Knowing about the NRO and NRE account and using them wisely will help you manage your finances in India from abroad. After all, it is your hard-earned money. Isn't it ?