If you're moving to the US on work, one of the things you might be wondering about is the difference between an NRE (Non-Resident External) account and an NRO (Non-Resident Ordinary) account. You might want to send money home or have some sources of income in India. This quick reckoner will explain the key points of both these accounts.
Why do you need an NRE or an NRO account in the first place?
According to the foreign exchange management act (FEMA), an NRI can't have a savings account in their name in India. If they're found to have such an account or accounts, they are liable to pay hefty fines. This is where an NRE or NRO account comes into the picture. They help NRIs send money home from the U.S. and manage any income they receive in India.
Differences between an NRE and an NRO account
What does an NRE account allow you to do?
This account allows you to park the money you earn abroad and converts it into INR. This account can be a saving, current, recurring, or fixed deposit account.
Is an NRE account taxed?
The deposits in this account are tax-free.
How do deposits and withdrawals from an NRE account work?
You can transfer the principal as well as the interest earned. Also, you can deposit money in foreign currency and withdraw in Indian currency.
Does an NRE account allow for joint account holding?
Yes. But both the account holders should be NRIs.
How do transfers work in an NRE account?
Money transfers from an NRE account are free. You can transfer funds from an NRE account to another NRE account as well as to an NRO account.
Do exchange rate fluctuations affect an NRE account?
Yes. It doesn't offer any buffer against currency fluctuations. As fluctuations can sometimes be volatile, this can affect the value of the money as well.
When is it advisable to have an NRE account?
If you want to convert a part of your earnings to INR and are looking for easy transferability, an NRE account is a good choice.
NRO account
What does an NRO allow you to do?
This allows you to park your earnings from India in INR.
Is an NRO account taxed?
Yes. The interest you earn on this account is subject to Tax Deducted at Source (TDS).
How do deposits and withdrawals from an NRO account work?
You can deposit money in foreign and Indian currency, but you can withdraw money only in Indian currency.
Does an NRO account allow for joint account holding?
Yes. If you're an NRI, you can open an NRO account with an Indian citizen as the other account holder.
Do exchange rate fluctuations affect an NRE account?
No. An NRO account is safe from currency fluctuations.
How do transfers work in this account?
You can transfer funds from an NRO to another NRO account, but not from an NRO account to an NRE account. Taxes are applicable on transfers, and 1 million dollars is the transfer limit.
When is it advisable to have an NRO account?
Consider opening an NRO account if you have a regular flow of income in India in rent, dividends, pension, or other income sources.
Conclusion
An NRE and NRO account each serve different purposes. Take stock of your situation and figure out which will be more beneficial to you.
