What are NRE and NRO accounts for NRIs / PIOs

Non-Resident Indian is often faced with the situation of maintaining a Rupee account in India. This post clarifies what are the options available for NRIs, specifically whether they should choose NRE or NRO accounts.

Why do we need a separate account for NRIs / PIOs
Primarily, there are two reasons for opening such an account: 

1. NRI wants to repatriate overseas earned money back to India
2. NRI wants to save and invest India based earnings in India.

What are the account options for NRIs?
NRI has the following two options of accounts available for opening in India:

1. A Non Resident External Rupee (NRE) account
2. A Non Resident Ordinary Rupee (NRO) account. An NRO account can also be opened by a Person of Indian Origin (PIO) and an Overseas citizen of India (OCI).

Similarities between NRE and NRO accounts

1. Both accounts can be opened as Savings account as well as current accounts
2. They are Indian Rupee accounts. 
3. The average monthly balance to be maintained for both NRE and NRO accounts is dependent on the bank.
4. NRO or NRE account may be in the form of savings, current, recurring or fixed deposit accounts.

NRO Savings accounts can also be maintained with the Post Offices in India. However, individuals/ entities of Bangladesh and Pakistan require prior approval of the Reserve Bank.

Differences between NRE and NRO accounts

1. Repatriation: NRE account is freely repatriable (Principle and interest earned) while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant.
2. Tax Treatment: NRE account is Tax free (no Income tax, wealth tax and gift tax) in India. On the other hand the interest earned in NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax.
3. Deposit of Rupee funds generated in India: If an NRI/PIO/OCI is earning income originating in India (such as salary, rent, dividends etc.) he/she is only allowed to deposit it in NRO account. Deposit of such earnings is not permitted in NRE account.
4. Joint Holding: NRE account can be jointly held with another NRI but not with resident Indian. On the other hand NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956.

When to choose NRE accounts

1. When you want to park your overseas earnings remitted to India converted to Indian Rupees.
2. When you want to maintain savings in Rupee but keep them liquid.
3. When you want to make a joint account with another NRI (possible only in a NRE account)
4. When you want your Rupee savings to be freely repatriable.

When to choose NRO accounts

1. When you want to park India based earnings in Rupees in India.
2. When you want an account where you can deposit any income earned in India such as rent, dividends etc.
3. When you want to open account with another resident Indian (close relative)

Interest Rates in Savings, Term Deposits for NRE and NRO accounts is very similar to what we get in the resident savings account in India.

Cheers

Manoj Arora

Lead a Financially Free Life !!

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