Difference Between NRE and NRO Account
NRE and NRO Accounts Explained
Non–Resident External (NRE) Savings Account – All Indians who are residing in foreign countries consider opting for NRE accounts. They can transfer funds to India through these accounts.
Non-Resident Ordinary (NRO) Account – All those NRIs who have their rent, pension or dividends etc flowing in on regular basis and have to make local payments regularly can operate through NRO accounts in India.
Difference between NRE and NRO Accounts
Following points will give you a clear understanding of NRE and NRO and will also bring out how these two accounts differ from each other.
- Motive or Purpose – NRE accounts help you with foreign exchange that has been earned by you while you are outside India. While NRO accounts come handy when you have some regular flow of income coming to you in form of rents, pensions, dividends etc even after becoming an NRI.
- Flow of Funds – When we talk of remittance, the Indian funds earned by you that are not required to be sent abroad form a part of the credits of an NRO account whereas funds that you consider for remittance outside the Indian boarders need to be credited to NRE account.
- Transfer – When you talk of an NRE account you are allowed to transfer funds from NRE account to NRO account however transfer of funds from an NRO account to an NRE account is not permitted.
- Deposits and Withdrawals – When we talk of NRO accounts, you can put funds in this account in Indian currency as well as in foreign currency but when you seek withdrawals they can be made only in India currency. In NRE account repatriation is allowed outside India in any currency but deposits are to be made specifically in foreign denominations whereas withdrawals can only be done in Indian currency.
- Repatriations – RBI does not play a significant role when it comes to repatriation of funds including the interest earned in NRE accounts. However, this does not hold true in NRO accounts as RBI has made some restrictions on repatriation in this account. You can remit only up to USD one million in one financial year including the sale proceeds of an immovable property that you do as an NRI. But you can freely remit you current income that includes rents, dividends, pensions etc after TDS.
- Taxation Laws – NRE accounts do not qualify for any kind of wealth tax. Interest earned from these accounts is also exempt from taxes. NRO accounts falls under the taxation slab- 30 percent along with 3 percent education cess is deducted as TDS. This charge is applicable to fixed deposits as well as savings account.
- Effect of Exchange Rate Fluctuations – NRE accounts fall under the pursuit of exchange rate fluctuations. These accounts are exposed to two kinds of exchange loss namely day-to-day fluctuations and conversion loss. NRO accounts do not involve such risk.
- Joint Holders – NRE account can be opened in joint names with an NRI but not with an Indian Resident. Opening an NRO account in joint names with an Indian Resident or NRI is permissible.
Both these accounts have their own importance and features. NRE accounts are fully repatriable and also help you in making investments in India from foreign earnings. NRO accounts help you in holding earnings that you earn in form of rents, dividends, pensions etc even when you are residing outside India.
Contributed By: Megha Sharma
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.