Difference Between NRE and NRO Accounts- A Guide
5 min read | 5 months ago
As a Non-Resident Indian or Person of Indian Origin, managing your finances in India is simplified by banks like Unity Small Finance Bank and others, as they allow you to open NRI accounts – namely, the NRE account and NRO account. The question is – is there a difference between them? Indeed, these accounts are tailored for NRIs, but they still differ significantly due to their features. Understanding these features can help you make informed decisions about your finances in India. So, let's begin!
NRI Accounts
For an NRI, it is easy to bring your earnings from overseas to India thanks to NRE accounts. These accounts are maintained in Indian currency and are also entirely repatriable, suggesting that you can transfer money to and from India without any restrictions. But that's not all that there is to NRE accounts. Here are some features that are also worth noting:
- Types of transactions allowed: Permissible transactions under FEMA includes inward remittances, transfers between NRE accounts, and investments in India.
- Tax Exemptions: NRE deposits are totally Tax Free i.e. the Principle and interest earned thereon, is exempt from
- Tax Advantages: The main advantage is the complete reparability of the NRE funds allowing NRIs to withdraw funds from India at any time. NRE accounts can be opened by NRIs and PIOs by presenting a passport, visa, and proof of their overseas address.
NRO Accounts
Did you know that if you're an NRI with income in India - like rent, dividends or pension - you can open an NRO account? It's maintained in Indian Rupees and is repatriable upto USD 1 million per financial year after paying applicable Taxes. It's a great option if you want to keep your funds within India and get easy access to them whenever you need them. Here are some features of NRO accounts for your perusal:
- Types of transactions allowed: NRO accounts support all transactions that are permitted under the Foreign Exchange Management Act (FEMA). This includes inward remittances, transfers between NRO accounts, and investments in India.
- Tax implications: The interest earned on NRO accounts is taxable in India, and NRIs are required to pay taxes on the interest earned in India. They can also claim tax benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence.
- Advantages: The main advantage of NRO accounts is that they allow NRIs to manage their income in India. They can make all the local payments like payment of Utility bills, Investments in India etc.
NRIs and PIOs can open NRO accounts by submitting a valid passport, visa, and proof of address& Income details in India.
Comparison Between NRE and NRO Accounts
Both the NRE account and NRO account are NRI bank accounts. So, what is the difference between them? Here is a guide that will help:
- Differences in features and eligibility criteria: NRE accounts are designed for NRIs wanting to repatriate their overseas earnings to India, while NRO accounts are designed for NRIs with income in India. The eligibility criteria and documentation required for opening these accounts are same.
- Differences in types of transactions allowed: Both accounts support all transactions permitted under FEMA, but NRO accounts are subject to certain restrictions regarding the repatriation of funds.
- Differences in tax implications: The interest earned on NRE accounts is taxfree in India, while the interest earned on NRO accounts is taxable. NRIs can also claim tax benefits under the DTAA.
So, which account is best suited for your needs? The choice between NRE and NRO accounts depends on your financial situation. If you have earnings outside India that you want to repatriate, then NRE accounts are the best option. If you have income in India that you want to manage, then NRO accounts are the best option.
Conclusion
In conclusion, NRIs and PIOs can open NRI accounts like the NRE and NRO accounts, to manage their finances in India. While both accounts serve different purposes, it is important to understand the differences between them before choosing one. NRE accounts are fully repatriable and tax-free, while NRO accounts are non-repatriable and taxable. NRIs should choose the account that best suits their financial needs and goals.
Also Read: NRI Accounts- Guide
FAQs
1. What is an NRE account?
An NRE (Non-Resident External) account is a bank account held by non-resident Indians (NRIs) that allows them to hold and manage their income earned outside India. The account is maintained in Indian rupees.
2.What is an NRO account?
An NRO (Non-Resident Ordinary) account is a bank account held by NRIs that allows them to manage their income earned within India. The account will be maintained in Indian and funds are subject to taxation as per Indian laws.
3. What are the key differences between NRE and NRO accounts?
The main difference between NRE and NRO accounts is the source of funds. NRE accounts are for income earned outside India and are fully repatriable, while NRO accounts are for income earned within India and are subject to taxation. Additionally, funds in NRE accounts are exempt from Indian income tax, while funds in NRO accounts are subject to tax
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
