Tuesday, January 10

Non-Resident External (NRE) & Non-Resident Ordinary (NRO) Accounts for NRIs


We often hear about the two types of Non-Resident bank accounts – NRE and NRO. We also keep hearing about the restrictions each has, like restriction on repatriation. This article clarifies the difference between NRE and NRO accounts, and explains their characteristics.
All Non-Resident Indians (NRIs) face a dilemma at the beginning of their NRI status – What kind of bank account should they maintain back home in India? Should it be an NRO account, or should it be an NRE account? Can you have both? What can each be used for? Let’s understand these things in detail.

Non-Resident External (NRE) Account

An NRE account is a Rupee denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account.
NRE accounts can be opened by NRIs.
Funds can be repatriated from an NRE account. This means that the funds can be freely sent to any other country.
An NRE account can contain funds remitted from abroad, or obtained from another NRE / FCNR account maintained in India.
Funds can be transferred from an NRE account to an NRO account without any restriction.
An NRE account can be held jointly, provided the other person is also an NRI.
The interest earned on deposits in an NRE account is exempt from tax in the hands of the NRI.
A resident power of attorney holder can not open an NRE account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI.
Nomination is allowed for NRE accounts.
If the NRI holding the NRE account returns to India and becomes a resident of India, the NRE account is converted into a regular resident account.

Non-Resident Ordinary (NRO) Account

An NRO account is a Rupees denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account.
NRO accounts can be opened by NRIs. Regular bank accounts of a person, who becomes an NRI, also get converted into NRO accounts.
Funds can not be repatriated from an NRO account. These funds have to be used only for local (within India) payments in Indian Rupees.
An NRO account can only contain funds received from within India.
Funds can not be transferred from an NRO account to an NRE account.
An NRO account can be held jointly with another NRI or with a resident Indian.
The interest earned on deposits in an NRO account is taxable in the hands of the NRI as per the applicable income tax slab rates.
A resident power of attorney holder can not open an NRO account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI.
Nomination is allowed for NRO accounts.
If the NRI holding the NRO account returns to India and becomes a resident of India, the NRO account is converted into a regular resident account.

A Quick comparison between NRE and NRO accounts

Non-Resident External (NRE) AccountNon-Resident Ordinary (NRO) Account
CurrencyRupee denominatedRupee denominated
TypeSavings, Current or a Fixed / Term DepositSavings, Current or a Fixed / Term Deposit
Who can open?NRINRI, Resident before becoming an NRI
Is repatriation allowed?YesUsually no
What can be the source of funds?Funds remitted from abroad, Funds from another NRE / FCNR accountFunds received from within India
Can funds be transferred to another account?Funds can be transferred from an NRE account to an NRO / NRE / Resident accountFunds can be transferred from an NRO account to an NRO / Resident account
Can it be opened jointly with an NRI?YesYes
Can it be opened jointly with a resident?NoYes
What is the income tax treatment of the interest earned?Tax freeTaxed as per applicable slab rate
Can power of attorney holder open the account?NoNo
Can power of attorney holder operate the account?Yes, can make local rupee paymentsYes, can make local rupee payments
Is nomination allowed?YesYes
What is the status of the account when NRI returns to India for good?Converted to resident accountConverted to resident account

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