Many non-resident Indians (NRI) are faced with having to maintain a rupee account in India. There are 2 available options for non-resident Indians that have an interest in opening an account in India – an NRO or NRE account. Below will explain the difference in the two bank account types and explain when it is best to choose each type of account.
There are two primary reasons that a non-resident Indian would need to open this type of account. The first reason is the non-resident Indian would like to repatriate money earned overseas back to India. The second reason is the non-resident Indian would like to keep Indian earnings in India. The non-resident alien can open a NRE (non resident rupee) account and/or a NRO (non resident ordinary rupee) account. In addition to non-resident Indians, a non resident ordinary rupee account can also be opened by an overseas citizen of India and a person of Indian origin.
NRO and NRE Similarities
Both NRO and NRE accounts can be opened as current accounts and savings accounts. The are both considered Indian Rupee accounts. Account holders need to maintain a Rs 75000 average balance monthly in both the NRO and NRE accounts.
NRO and NRE Differences
1. Tax Treatment – An NRE (non resident rupee) account has no wealth tax, gift tax or income tax. Although the NRE is tax free, the interest earned and credit balances in the NRO (non resident ordinary rupee) account are subject to income tax, gift tax and wealth tax.
2. Repatriation – The interest and principal in a NRE (non resident rupee) account are freely repatrible. NRO (non resident ordinary rupee) accounts have restricted repatriblility for example there is remittance is permitted up to $1 million USD net each fiscal year of applicable taxes after giving undertaking when it is accompanied by a chartered accountant certificate.
3. Joint Holding – NRE (non resident rupee) accounts can be opened as a joint account with another non resident Indian but it cannot be opened with a resident Indian. NRO (non resident ordinary rupee) accounts can be opened with a resident Indian that is a close relative in addition to another non resident Indian. This rule is defined in the Companies Act 1956 Section 6.
4. Deposit Funds From Funds Originating in India – If a non resident Indian, person of Indian origin or overseas citizen of India earn income that originates in India including rent, dividends or salary, they can only make the deposit in a NRO account.
Which Account Should You Choose?
Choose an NRO account if you:
• Would like to keep Indian earnings in India (PRIMARY REASON);
• Would like to open a bank account with a close relative that is a resident Indian;
• Would like to deposit money earned in India including dividends, rent, etc.
Choose an NRE account if you:
• Would like to keep earnings made overseas in India and funds to convert to Indian Rupees (PRIMARY REASON);
• Would like to open a joint account with a non-resident Indian;
• Would like to maintain your savings in Rupees but you want to keep them liquid;
• Would like your savings to be repatriable