How are NRE Accounts Different From NRO Accounts?

There are many facilities that banks provide for resident as well as non-resident Indians. Those living in foreign countries can quickly receive and transfer money to one another using different bank accounts. There are individual savings accounts for fund transfers limited to foreign countries. An NRI faces lots of difficulties in managing their finances while they reside abroad. They also find it tough to track bank accounts of different countries. They cannot repatriate money to their home account due to several issues.

But, with the introduction of NRO and NRE accounts, non-resident Indians can send money they earn abroad to India at any point of time. They can retain their income from India with the help of assets and store it in these accounts. The Non-Resident Rupee account offers complete security. They are available in various forms like savings accounts, current accounts, recurring deposit, or fixed deposit accounts.

The foreign currency gets converted to Indian Rupee. Users can transfer funds (Principal & Interest amount) to a foreign account without any complications and restrictions. All the money that a person deposits into these accounts should be of foreign currency and earned outside India. They can also use the international debit card for transactions and withdrawals of cash without any limitations. They also get access to effortless and instant mutual fund investments if they link their NRE accounts to the investment account. People use NRE accounts to carry out business and personal investments in India.

What is the difference between the accounts?

Many Indian citizens who settle in foreign countries cannot differentiate between Non-Residential External (NRE) and Non- Resident Ordinary (NRO) Accounts. There are significant differences between the accounts. Following are the points of differentiation:

  • Repatriation: An NRO account has limited access for repatriation. It restricts users from remitting more than USD 1 million inclusive of taxes during an assessment year. They can repatriate the interest amount freely, but the principal amount has set limits. They require an undertaking and a certificate from a Chartered Accountant for the process. But for NRE account holders, repatriation is free for the interest as well as principal amounts.
  • Taxation: An NRE account is tax-free in India. It does not include income tax, wealth tax, or gift tax. On the other hand, the interest earned in NRO account and credit balances falls under the income tax bracket. They are also applicable to wealth and gift tax.
  • Joint accounts: After understanding what is NRE account, individuals can open a joint account on the condition that both parties are NRIs. They can also open an NRO account with another NRI or close relative who is an Indian resident.

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