What is the Difference Between NRO vs NRE Account?

For all those Non-Resident Indians( NRIs) who want to manage their finances in India while being abroad, opening NRI accounts is the best option. You can open an NRE account to manage your foreign income in India and open an NRO account to manage your Indian income. If you are confused about the difference between NRE and NRO accounts and which account you should open and which one would be beneficial, then you will have to understand the features of both accounts.

In this blog, we have outlined the difference between NRE and NRO accounts by comparing them on the basis of different features. This blog will help you make an informed decision about the best NRI account for you. 

What is an NRE Account?

The full form of NRE is Non-Resident External Account, and it is used by the NRIs to deposit their foreign earnings in India in Indian currency. The deposits are done in foreign currencies and then converted to INR because the withdrawals are in Indian Rupees. There are various forms of these accounts, such as savings, recurring, current, or fixed deposits.

You can easily transfer your total amount of deposits to a foreign bank account without any restrictions or complications. These accounts can only contain the income earned outside India. Your investments can also be simplified if you link your investment account to the NRE account number. Most of the NRIs use NRE accounts mainly for business, personal banking, and making Indian investments.

What is an NRO Account?

The full form of NRO is Non-Resident Ordinary Account, and it is used to manage the income earned by the NRIs in India. This account is maintained in Indian Rupees, and it includes rent, pensions, dividends, and other domestic earnings. The deposits can be in foreign or indian currency, but the withdrawals can only be done in INR. 

The interest on the deposits of this account is taxable in Indian, and it is subject to Tax Deducted at Source (TDS). You can claim a relief under the Double Taxation Avoidance Agreement (DTAA). The principal funds that you can repatriate have a maximum limit of 1 million USD per FY based on your documentation. You can also apply for a joint NRO account with an NRI or a resident relative of India. 

Difference Between NRE and NRO Account

Here is the difference between NRE and NRO accounts in a table form. It contains their comparison based on some features, you can understand and decide which account suits you the best, as per your financial needs. 

Similarities Between NRE vs NRO Accounts

Both the NRE accounts and the NRO accounts have some similarities. In these tabled representations, their similarities are explained based on the common feature:

What Is the Importance of an NRO vs NRE Account?

1. Sending Foreign Income To India:- Both the NRE and NRO accounts can receive foreign currency credits in India. If your purpose behind opening an account is to ease the transfer of foreign income in India. 
2. Receiving Indian Income In The NRI Account:- NRI may be earning their income in several forms in Indian currency. It can be in the form of dividends, rental income, business income, etc. For any such income, an NRI should open an NRO account only.
3. Eliminating the Currency Risk:- NRE and NRO accounts eliminate the currency risk for an NRI. This is because the amount received in the accounts gets converted into the Indian rupee at the same time. 
4. Repatriation of funds:- Repatriation of funds means the ability to send the money to a bank account abroad. Both NRE and NRO accounts allow the NRI to repatriate the interest income without any restrictions. In terms of principal amount, only the NRE account allows the repatriation of the funds with no limits. 
5. Taxability:- The interest earned for the balance in the NRE accounts is exempt from tax. If there is no other taxable income in India for the NRI, then they are not even required to file their Income Tax Return (ITR) in India. They also don't have to pay any tax in India.

How to Choose Between NRE vs NRO Account?

The factors that affect the decision of choosing between NRE and NRO accounts are the source of your income and how you plan to use those funds. Here is the explanation by which you can decide:

• You should select an NRE account if you earn a foreign income, including salary, business income, or foreign assets. This income is tax-free in India, and you can easily repatriate the whole amount, including principal and interest. It becomes a great option for those NRIs who want to send money back abroad without any restrictions. 
• You should choose an NRO account if the income you earn comes from Indian sources, such as rent, dividends, pension, or other domestic sources. The interest earned on this account is taxable in India, and you can only repatriate the principal amount within the limit of 1 million USD per FY with proper documentation. You can also open this account jointly with your Indian family member, which makes it easy to manage the family finances. 

If you are still confused about what account you should open in India, then go with this simple logic: for managing foreign income, open an NRE account, and for managing Indian income, open an NRO account. You can also open both the NRI accounts for managing the finances seamlessly across borders.

Why Choose NRE and NRO Accounts?

According to the guidelines of the Foreign Exchange Management Act (FEMA), the NRIs are not allowed to have a savings account in Indian in their name. If they continue to use a savings account in their home country, then it can cost them hefty penalties. So, to save yourself from all this and manage your finances in India, what you can do is open an NRI account. You need to deposit all your funds in an NRE or NRO account and then continue to use them.

How Can Visament Help?

For NRIs, these NRI accounts help a lot in managing finances in India while staying in a foreign country. Many of the NRIs face challenges in opening them as it includes a lot of documentation process and legal compliance. You can take help from the experts and then proceed to open these NRI accounts in India. You can visit our platform, Visament, as we have a team of professionals with 30+ years of experience. They have in-depth knowledge about these NRI services.

You can get assistance from them 24/7, and they can help you open your bank account from the comfort of your home. The prices of our services are also affordable. We also have an option for personalised services for NRIs; you can avail the services as per your requirements.