If you are a Non Resident Indian or an NRI and need to maintain a Rupee bank account in India then there are several options available to you. You can choose to open an NRE account which is a Non –Resident External account or a Non Resident Ordinary Rupee account which is generally known as NRO account. There are several distinguishing characteristics of these accounts which make them suitable for different people in different circumstances. Generally such accounts are opened when an NRI wants to bring money back from abroad and wants to keep it in India and the other reason is when NRIs want to keep their Indian earnings in India. In order to find out which account is good for you, it is imperative to have a complete low down on both types of the accounts.
The main point of similarity between both the accounts is that these accounts may be opened in saving or current accounts format. Both the accounts carry minimum balance requirement, but these requirements differ from bank to bank and hence the investor is advised to check with their bank about this requirement. These accounts can also be opened by Overseas Citizen of India (OCI) or a Person of Indian Origin (PIO).
NRO account can be opened in joint ownership format with an Indian resident. It can also be opened in joint ownership with another NRI. However, NRE accounts are not allowed to be opened in Joint name with an Indian resident. You can share the ownership of the account with another NRI though.
Making the choice
The choice between the accounts depends on your repatriation needs. NRE accounts offer free repatriation which means that the principal as well as the interest earned on that principal amount may be easily remitted. However, NRO accounts limit the repatriability of the funds is limited to $1 million in a financial year. This amount is net of applicable taxes. This account also requires the account holder to provide a certificate issued by a chartered accountant as well as an undertaking. In this way, NRO account is more restricted and highly regulated in comparison to NRE account. These rules are governed by the Reserve Bank of India and the investor should keep an eye over any change in such rules.
The purpose of the account will also determine which type of account is more suitable for you. NRE account is more useful if you want to keep your foreign income in Indian rupees and the money was earned aboard. NRO accounts are more useful if you are an NRI but receive any form of income in India in Indian rupees. This income may be in the form of rent, dividends, pension or any other form.
With NRE account, you can transfer the funds from your account to an NRO account however the transfer of funds from an NRO account to an NRE account is not possible. NRO account is more versatile option if you need to keep funds in Indian and foreign money denomination. However, the withdrawal can only be made in Indian currency. NRE accounts, on the other hand, allow the deposits to be made only in foreign currency. But like NRO accounts, withdrawals are allowed only in Rupee denomination.
NRE accounts are not liable for the imposition of any tax such as wealth tax. This is true for principal as well as for interest income. However, NRO accounts are taxed at 30 percent plus 3 percent education cess. This tax is deducted in the form of Tax Deduction at Source or TDS. This rate of tax is applicable even if the account is in the form of savings account or fixed deposit account.
The biggest point in the favor of NRO account is that it is not subject to currency fluctuation. NRE account funds, on the other hand, are subjected to daily fluctuation in the exchange rate. Such funds are also exposed to conversion loss. NRO account funds are immune to such fluctuations.
In nutshell, NRE account is more suitable for people who require an account for making payment in Indian Rupee. It is also suitable for people who seek to invest their foreign incomes in India. Another point for NRE account is that it lets you maintain your account in Indian Rupees and also offers you the liquidity. The account is handy if you want to have joint ownership of the account with another NRI.
NRO account is more suitable for people who are interested in opening an account with joint partnership with an Indian resident person. If the investor is interested in making investment in India using their Indian income then NRO account is the way to go. This account can also be used for depositing the Indian income accruing to an NRI.