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NRE vs NRO Account: Which one is right for NRIs?

Summary: Explore the differences between NRE and NRO accounts for NRIs. Find out which account suits your needs better, as you manage your personal finances while living abroad.

07 Aug 2024 by Team FinFIRST
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Non-Resident Indians (NRIs) often find managing their foreign investments in India cumbersome. Identifying the right account to store one’s money can be very confusing, given the number of products in the market. In this connection, NRE and NRO accounts are two main tools NRIs can rely on. NRE means Non-Resident External Account, and NRO stands for Non-Resident Ordinary Account. 

Before you choose one of these, you must know the difference between an NRE and NRO account. Read on to know more.

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Basis


NRE Account


NRO Account

Meaning

A Non-Resident External (NRE) account is an account designed for non-resident Indians (NRIs), to hold their foreign earnings in Indian rupees, while residing outside of India.

A Non-Resident Ordinary (NRO) account is an Indian bank account that enables Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) to handle their income generated within India.

Purpose

Can be used as a bank account to transfer foreign earnings to India, in Indian rupees.

Can be used as a savings account to manage the income earned in India by an NRI, in Indian rupees (e.g., pension, rental income, dividend income).

Repatriability

All deposits made, including the interest earned, are fully repatriable.

Repatriation limit up to USD 1 million in a financial year, after paying all applicable taxes.

Taxability

All deposits are free from income tax, including the principal amount, and the interest earned.

The interest earned is subject to Tax Deductible at Source (TDS).

Account Holding

Can be held jointly by two NRIs, or an NRI and a resident Indian citizen.

Can be opened by an NRI along with an Indian citizen or other NRIs.

Fund Transfer

Funds can be transferred from one NRE account to another, as well as from an NRE account to a resident or NRO account.

Funds can only be transferred to another NRO account and to a resident account, but not to an NRE account.

Exchange Rate Risk

Affected by exchange rate risks, such as fluctuations and conversion losses/gains.

Less likely to be affected by the  daily exchange rate fluctuations. However, it is not always free from risk, since foreign income can also be transferred to NRO account.

Choosing the right account:
 

Here are two key aspects involved in choosing the right NRE or NRO account:

  • Factors to consider:

- Deposits and withdrawals: You must consider the currency in which you wish to deposit and withdraw your savings.

- Fund transfers: If you wish to transfer funds to an NRE account, you must opt for an NRE account. NRE accounts allow customers to transfer funds to NRE and NRO accounts. On the other hand, NRO accounts do not allow fund transfers to NRE accounts.

- Effect of exchange rate fluctuations: NRO accounts pose no risks related to exchange-rate fluctuations. NRE accounts, on the other hand, are susceptible to conversion loss.

  • Consulting experts: You must consult an employee of the bank or any other financial expert before choosing one type of NRI account over another.

Importance of NRE and NRO accounts for Non-Resident Indians (NRIs):
 

  • Financial management: Depending on your requirements, an NRE/NRO account can improve your overall financial management.
  • Remittances: NRE accounts help you remit your overseas earnings to India and convert it in INR.
  • Banking services: NRE and NRO accounts offer a wide range of banking services and are accessible at all times.
  • Joint accounts: Can open a joint NRO account with an NRI or a resident Indian.

NRE vs NRO: Which one should you choose?
 

There is no universal right or wrong account. As an NRI, you should arrive at a decision based on your unique needs and income sources. You can use an NRE bank account to store foreign currency converted to Indian rupees, while an NRO account is used to keep both foreign income and money earned in India. NRO accounts have a limit for repatriation up to USD 1 million per financial year, but NRE accounts have no such limit. IDFC FIRST Bank offers NRI savings accounts with both NRE and NRO options to help expats manage their foreign direct investment FDI. These two accounts can help NRIs to invest and manage their money seamlessly. You can also keep track of all your accounts with the IDFC FIRST Banking App.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.

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