Distinguish between a NRO and NRE account

There are two options available to NRIs who wish to open a bank account in India. He can either open an NRO or NRE account. One should know the differences between the two types of accounts and the one that is more advantageous for you.

The Government of India allows a NRI to open rupee accounts in India for repatriating funds from the other countries. The most common types of accounts are the NRO and NRE account.

Actually, there are two reasons for opening such accounts. The first of them is that a NRI wishes to repatriate money earned from other country to India or wishes to keep India based earnings in this country.

Thus, a NRI has the option of opening either a Non Resident Rupee (NRE) account or a Non Resident Ordinary Rupee (NRO) account.

NRE account – defined:

A Non-Resident External (NRE) accounts that type of a bank account that is opened by depositing foreign currency while opening the account. This currency is deposited either through traveler’s cheques or currency notes.

NRO account – defined:

A Non-Resident Ordinary (NRO) account can be opened by an Indian who is going abroad for becoming an NRI. A NRI can open this account by sending remittances from the country in which he is residing or by transferring funds from another NRO account standing in his name. It gives similar facilities as an NRE account. But any repatriation through this account has to be reported to the Reserve Bank of India through prescribed forms.

Difference in the tax treatment in case of NRO and NRE account:

The interest earned in a NRO bank account as well as the credit balances of this type of account are taxed under the tax bracket of the NRI concerned. Whereas the interest earned on any NRE account is fully exempted from income tax, and the credit balances are not liable to pay any wealth tax.

Similarities between a NRO and NRE account:

Both the types of accounts can be opened both in the form of a Savings and a Current account and are Indian Rupee accounts. An average monthly balance of Rs 75,000/- has to be maintained in case of both NRO and NRE account.

Dissimilarities between NRO and NRE account:

 Funds earned out of overseas sources or funds earned in India which can be sent to the account holder abroad can be transferred to an NRE account. Whereas, local funds that cannot be remitted abroad has to be credited to a NRO account.

An NRE account can be jointly held with another NRI but not with an Indian resident. Whereas an NRO account can be held with an NRI as well as an Indian resident.