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As an NRI, you have two options: NRE (Non-Resident External) and NRO (Non-Resident Ordinary) bank accounts in India. However, before you choose either of the two accounts, you need to know the differences between NRE and NRO accounts to decide which account is more suitable for you to manage your investments in India.
Let’s first understand what is NRE and NRO account?
NRE is an Indian-rupee-denominated bank account type available to non-resident Indians.
NRIs who wish to use foreign earnings to invest in India must open NRE account. NRIs can deposit their income earned abroad into the NRE account, convert it into Indian rupees, and use it to purchase stocks listed on the BSE and NSE.
Unlike NRE account, NRO account should be opened to manage income generated in India. NRIs can have various sources of income in India such as rental income from residential property, dividends, pensions, etc., which can be deposited into the NRO account. Thus, an NRO account functions like a savings bank account for managing income in Indian currency.
Find out now about the differences between NRE and NRO bank accounts in terms of tax implications or TDS, repatriability, transferability, exchange rate or currency fluctuation risks.
| NRE Bank Account | NRO Bank Account | |
| Purpose | NRE bank account is opened to transfer and deposit foreign earnings in Indian rupees. | NRO account is opened by NRIs to deposit the income earned in India like rental income, pension, dividend, etc. |
| Joint holdings | NRE account can have two NRIs or one NRI and one resident as a joint holder. | Same way, NRO account can also be open along with an Indian resident or another NRI. |
| Deposits | Only income earned overseas can be deposited into an NRE account. | NRI can deposit foreign as well as Indian earnings in the NRO account. |
| Fund withdrawal | NRI can transfer or withdraw NRE account balance to a foreign account. Further, NRE account deposits can be transfer to NRO or a resident account. | Money can be withdrawn in Indian as well as abroad but is allowed in Indian currency only. NRO account fund deposits cannot be transferred to an NRE account. |
| Taxation implications | Interest earned on NRE account balance is tax-free. | Interest earned on NRO account is subject to TDS applicability. |
| Repatriation or transferability facility | All deposits including principal and interest receipts are fully repatriable. | NRO Account deposits are not repatriable. Money from NRO account can be repatriated abroad upto maximum USD 1 million in a financial year however, interest is fully-repatriable. |
| Exchange rate risk | Prone to currency fluctuations or exchange rate risks. | Deposits in NRO account is less likely to be affected by exchange rate risks if both deposits and withdrawal are made in Indian rupee. |
| Equity investment | An NRE account needs PIS approval to buy and sell shares of listed Indian companies. | NRI holding NRO account in India does not require obtaining PIS letter to invest in Indian companies. |
| F&O trading | Not Available, NRE account does not allow equity derivative trading. | Available, NRO account can be used to trade in equity derivatives segment. |
| Investment in Mutual Funds | NRE account can be used to invest in mutual funds in India. | NRO account also allows investment in mutual funds. |
| Who can open? | A non-resident Indian (NRI) including PIOs, and OCIs are eligible to open NRE account. | Any non-resident can open an NRO account in India. |
Now the question is which of the two accounts, NRE or NRO, to choose. Depending on the source of income and need, either account may be a good choice.
The NRE account is best for parking foreign income and holding it in Indian rupee, while the NRO account should be chosen to store income earned in India and abroad. Note that money in an NRE account is fully repatriable or transferable, while this option is not available in an NRO account. You can open an NRE account to invest in the Indian market on a repatriation basis or use an NRO account to invest on a non-repatriation basis.
As an NRI, you need to take the right decision after clearly defining your requirements.
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The most important difference between the two accounts is NRE account is fully repatriable means you can remit the account balance including the principal and interest in India and abroad while the NRO account has repatriation restrictions of maximum $1 million in any financial year, and the interest is fully repatriable. Other differences are NRE account is tax-free while there are no tax benefits on the NRO account.
Yes, all individuals qualifying as non-resident or NRI are eligible to open either NRE or NRO or both of these accounts to meet different purposes. As an NRI, you can open NRE account to manage foreign earnings while NRO account can be opened to manage the income sourced from India.
An NRI can link NRE account to buy and sell shares on a repatriation basis while NRO account can be mapped to invest on non-repatriation basis.
No, as per SEBI rules, an NRI can invest in Indian stock market through channelizing their investment via PIS or non-PIS route. If an NRI use NRO bank account for investment then obtaining a PIS permission letter is no more mandatory as an NRI can use non-PIS NRO account to invest in Indian companies and trade in F&O segment.
Any person residing overseas other than non-residents in Bhutan and Nepal can open an NRO savings bank account in India.
Yes, NRI NRE or NRO account are subject to minimum balance commitments ranged between Rs 5,000 to Rs 25,000 vary from bank to bank.
For NRIs who are willing to channelize their investment through PIS route, there is no requirements to maintain minimum balance in PIS account. Whenever required, NRIs have to allocate funds from NRE bank account to PIS account and the banker will intimate your broker with whom you have a NRI trading account to maintain the NRI trading margin limit accordingly.
Opening an NRE account by NRI provides the following benefits;
An NRI, PIO, or OCI should open an NRO account if;
Interest earned on balance lying in the NRO bank account is subject to 30% TDS in addition to the cess and surcharge applicable.
Yes, as NRE account is fully repatriable you can easily transfer funds from your NRE to NRO account however, free transfer of funds from NRO to NRE account is not allowed.
An NRI can transfer maximum of USD 1 million from NRO to NRE account subject to certain documentation requirements.
NRE account has no tax implications or the interest earned on NRE account balance is tax-free however, NRO account interest earnings is subject to TDS. So on tax perspectives, NRE account is good.
