Difference between NRE and NRO Account | CAIIB JUNE 2023

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So, let us begin with the topic of NRE & NRO Account.

NRE Account & NRO Account

NRIs can open two types of savings bank accounts with approved dealers and banks under the Foreign Exchange Management Act (FEMA): an NRE rupee account and an NRO rupee account.

NRIs must open their own NRE accounts according to the RBI. These accounts cannot be opened by someone with a power of attorney.

What is an NRE Account?

An NRE or Non-Resident External account is used to keep money earned in foreign currency in rupee denomination. The money deposited in an NRE account is converted into Indian currency at the time of deposit. These accounts can be in the form of savings, current, recurring, or fixed deposits.

NRE account is primarily used for carrying out business, personal banking and making investments in India. The person who holds the account is free to repatriate funds from foreign countries into India and from India to other countries.

Benefits of NRE Accounts:

Here are some benefits of Non-Resident External account (NRE) Accounts which make the NRE Accounts very popular amongst NRIs & those are listed below:

• Non-Resident External accounts are exempt from the tax. This means that both, the principal amount deposited and the interest you earn on the principal is free from tax.

• One is also free to repatriate the principal amount and the interest amount on principal without any restrictions. Repatriation, here, means transferability. And one is free to transfer their funds to a foreign account from a Non-Resident External account
• Non-Resident External accounts (NRE Account) can be used for personal purposes or for carrying on business-related activities in India. Although the primary purpose of NRE Accounts is to make direct investments in India.

What is an NRO Account?

The Non-Resident Ordinary account or the NRO account is used to manage the income earned in India like dividends, rental income, pension, etc.

Account holders can deposit and manage their accumulated rupee funds without any hassle. Funds deposited into a NRO account can only be kept in rupees and cannot be converted into foreign currency or repatriated. Although money cannot be sent outside India or converted into foreign currency from an NRO account, the account owner can send money into this account from a foreign country.

DIFFERENCE B/W NRE ACCOUNT & NRO ACCOUNT

SIMILARITY BETWEEN NRE ACCOUNT & NRO ACCOUNT

Both NRE & NRO accounts are Indian rupee (INR) accounts. One can open the accounts as savings accounts as well as current accounts. Also, the average monthly balance that is required to maintained for both accounts is Rs 75,000. The following table shows the differences between the NRE and NRO accounts:

Thus, both the NRE and NRO accounts serve different purposes. If the source of income is in India,  NRO account should be opted as an NRE account will not serve this purpose. But if you just want to convert a part of foreign earnings into savings denominated in the Indian currency, the NRE account would be an ideal choice.

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