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  • Writer's pictureSahastha

NRE and NRO Accounts

Updated: Oct 4, 2023

As per the foreign exchange management act(FEMA) guidelines, an individual (NRIs) working and earning in a foreign country are not allowed to transact through a normal savings account. So, it is compulsory for NRIs to open NRE/NRO accounts in India, if they want to send the money back to India or save it in an Indian account. Both NRE and NRO accounts have different features to fulfil various financial needs of NRIs. They offer great convenience to park your money earned abroad, to get benefit from taxation and to easy repatriation.

let us understand what are the NRE and NRO accounts signify for NRIs.

An NRE (Non-resident external) account is opened in India to transfer foreign earnings to India. This is basically for foreign currency earnings. Whereas, an NRO (Non-resident ordinary rupee) account is opened to manage the income earned in India such as rental income, dividend, pension income, interest income, etc.

NRE and NRO accounts are Indian rupee accounts meant exclusively for NRIs. Most Indian public and private sector banks have facility to open this accounts. These accounts opened as savings, current or as deposit accounts. person allowed to open NRE account after he qualify as an NRI for tax purpose. However, existing resident accounts itself can be converted into NRO account once you become an NRI. It is your duty to intimate the changes in your tax status to the bank.

Understand the difference

Let us understand the difference on various parameters.

Repatriation:

You can repatriate any amount from an NRE account to any account outside India in any currency of your choice. But it’s not possible to transfer funds from an NRO account to NRE account. All your income generating in India should be deposited in NRO accounts only, but not allowed to deposit in anyone else. NRE account allows free repatriation to any currency and make repatriable investments in Indian markets. Funds from NRO account can be repatriate up to 1USD million in a FY.

Currency option for deposit

Deposit in cash to an NRE account in any foreign currency (except Indian rupees) is allowed. However, NRO account allows deposit in any foreign currency (including Indian rupees).

Exchange rate fluctuation

NRE accounts exposed to two kinds of exchange loss, those are conversion loss and currency fluctuations. NRO accounts are always secure from currency fluctuations.

Taxability

NRE accounts are tax exempted (which includes interest earned from funds), you can get relief from double taxation though DTAA (dual taxation agreement).

NRO accounts are taxable according to income tax act 1961.

Account of holding:

You can open a joint NRE account with another NRI but not a resident Indian. But you can open a joint NRO account with a resident Indian. This NRO account is very useful if you want your Indian earnings to be easily accessible to your family back home.

Can NRIs open Demat account and Trade in Indian Stock Market?

Yes, as per FEMA guidelines, an NRIs can open demat account and trade in Indian stock market. For that they need to have either NRO or NRE bank accounts. However, NRIs are not allowed to trade in currency, commodity and intraday in equity segments.

An NRI has to maintain a separate demat account on repatriable and non-repatriable basis. An NRE demat Account should be linked with NRE Bank Account for trading on repatriation basis. An NRO demat Account should be linked with NRO Bank Account (Non-PIS) for non-repatriable transactions. To make investments in India through an NRE account, your demat account must be under PIS (Portfolio Investment Scheme). For an NRO account, you do not need to follow PIS rules.

Summing it up:

An individual can open an NRE or NRO account or both, depending on the financial needs. If your total income includes income earned in India and you want to manage it within the country, you can opt for an NRO account. An NRE account can be opened if you want to transfer your foreign income to India and want to avoid taxation liabilities.

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