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The difference between NRE and NRO

accounts

There are two options an NRI interested in opening a bank account in India can choose

from an NRE or an NRO account. Are you an NRI keen on getting a bank account

opened in India? Then it would be advantageous to know how these two types of accounts

differ and which one is right for you.

The Government of India has permitted NRIs to open rupee accounts in India in order to

repatriate funds from their home countries. The two most common accounts are the NRE

and NRO accounts. Lets take a closer look at them.

Whats an NRE account?

A Non-Resident External (NRE) account is a bank account thats opened by depositing

foreign currency at the time of opening a bank account. This currency can be tendered in

the form of travelers checks or notes.

Whats an NRO account?

A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian

going abroad with the intention of becoming an NRI. An NRI can also open this account

by sending remittances from his home country or by transferring funds from his other

NRO account. It offers the same facilities as an NRE account, except that any repatriation

done through this account should be reported to RBI by filling up prescribed forms.

How do NRE and NRO accounts differ?

Funds remitted from overseas sources or local funds that would otherwise have been sent

to the accountholder abroad can instead be transferred to NRE Accounts. On the other

hand, local funds that arent eligible to be remitted abroad must be credited to an NRO

account.

Can you transfer funds fromanNREto anNROaccount and vice versa?

Its easy to transfer funds fromanNREto an NRO account. But its not possible to transfer

funds from an NRO account to an NRE account. Once you transfer funds

fromanNREtoanNRO account, the amount is non-repatriable. Consequently, you cannot

transfer it back.

Whats the difference in the tax treatment for interest earned on an NRE and an

NRO account?

The interest earned on any type of NRO bank as well as the credit balances in this kind of

account are taxed under the account holders tax bracket. On the other hand, interest

earned on the NRE account is totally exempted from income tax, and the credit balances

in the account dont attract any wealth tax. Any gift given to a close relative doesnt

attract gift tax.

NRE and NRO accounts are two different types of rupee accounts permitted by the Government of

India for NRIs. Have you tried opening either of these accounts? With which bank did you open your

account? How did you decide which one to go for?

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