If you are an NRI, you might struggle with managing your finances in India. Luckily, you can open an NRE or an NRO account to store your funds. But you must compare an NRE vs NRO account to determine which one would be a better fit for your finances. Delve deeper into this article to discover the key differences between the two types of NRI savings accounts on the basis of various factors.
Purpose
An NRE account is ideal for transferring foreign earnings to the country in Indian rupees. However, an NRO account serves as a savings account to manage the income generated in India by an NRI. The income source for an NRO account can be anything, including rental income, pension, and earnings from dividends.
After knowing the FCNR full form, you might confuse it with an NRE or NRO account. But remember that an FCNR account is for storing foreign currency earnings in an Indian account.
Exchange Rate Risk
In an NRO account, you will be able to make deposits as well as withdrawals in Indian currency. It eliminates the risk of an exchange rate. However, NRO accounts are prone to currency fluctuations and the risk of exchange rates.
Taxability
A major difference between NRE and NRO account is evident in terms of taxability. You should know that you don’t need to pay any tax for deposits in an NRE account. Therefore, the principal amount, as well as the interest earned on it, is free from income tax.
However, an NRO account is not fully exempt from income tax. The principal amount in an NRO account doesn’t attract any tax. However, the interest income generated in this account will attract a TDS.
Repatriability
All deposits in an NRE account are completely repatriable. In fact, the interest earned in an NRE account also comes with full repatriability.
However, NRO accounts come with repatriation limits. You can freely repatriate the interest amount in an NRO account. But for the principal amount, you will be able to repatriate only an amount of up to $1 million in a financial year using an NRO account. Moreover, you will have to pay all the applicable taxes before repatriating your taxes.
Holding Structure
You will also discover a difference between NRE and NRO accounts in terms of holding structure. NRIs can easily open an NRO account jointly with another NRI or an Indian resident. But if you wish to open a joint NRE account, you can only do it with another NRI.
NRE and NRO Accounts: Understanding the Key Differences
NRE Account:
Repatriation: NRE accounts are designed for NRIs who want to bring foreign income back to India. They are fully repatriable, which means the funds in these accounts can be freely converted to any foreign currency and transferred abroad.
Currency: NRE accounts are maintained in Indian Rupees (INR), and the principal amount, as well as the interest earned, is fully exempt from Indian income tax.
Source of Funds: NRE accounts can only be funded with foreign income earned abroad. It is the ideal choice for NRIs looking to invest foreign earnings in India.
Source of Funds: NRE accounts can only be funded with foreign income earned abroad. It is the ideal choice for NRIs looking to invest foreign earnings in India.
Joint Accounts: NRIs can open NRE accounts jointly with other NRIs, but not with Indian residents.
NRO Account:
Repatriation: NRO accounts are primarily for NRIs who have income generated in India, such as rental income, dividends, or pension from Indian sources. While the principal amount is repatriable (subject to certain conditions), the interest earned is not fully repatriable.
Currency: NRO accounts are also maintained in INR, and the interest earned is subject to Indian income tax.
Source of Funds: NRO accounts are funded with income earned in India. They serve as a convenient option for NRIs to manage their Indian earnings.
Joint Accounts: NRIs can open NRO accounts jointly with other NRIs or even Indian residents, making them more versatile in this regard.
NRE vs NRO: Which One Is the Right Fit for You?
As an NRI, you will have to examine your income sources and unique requirements to determine which account would be the best for you. If you are thinking about opening NRI savings accounts, IDFC FIRST BANK is the best choice. The bank allows you to open an NRE as well as an NRO account to manage your foreign direct investments. These accounts are ideal for NRIs to manage their finances seamlessly.