NRE and NRO Accounts: Savings From Across the Globe

Last Updated at: March 11, 2020
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NRE & NRO Accounts – Meaning, Comparison, Benefits, Taxation

Being a non-resident Indian (NRI) maintaining and keeping regular updates about your finances and accounts might feel like a tough deal when there is no one back at the home country to look after it. Residing outside the country and continuing with your savings account in the country could lead to a big financial mess and further hefty penalties. But, there is always a way out. You need not start from scratch to move overseas. And to the rescue are NRE (Non-Resident Rupee Account) and NRO (Non-Resident Ordinary Rupee) accounts, which are the most viable options for an individual to keep earning, saving, and depositing their amounts to retain their finances in the most secured way. As per the guidelines set up by FEMA, having a savings account in India being an NRI is illegal.

  1. NRI parameters according to ITA and FEMA

  2. NRE accounts: An overview

  3. NRO accounts: An overview

  4. NRE and NRO accounts difference

  5. Conclusion

 

Before knowing the NRE and NRO accounts difference, one must exactly know what these are for and the benefits that they offer.

NRI parameters according to ITA and FEMA

After shifting from the home country, one might be considered as an NRI by the FEMA but not by the ITA due to the varying number of days for which the individual has been away from the country.

As per the Income Tax Act, 1961, an individual moving out of the country for employment purpose is considered an NRI if they have not been present in the country for a duration of more than 181 days, over the previous four years.

As per the Foreign Exchange Management Act 1999, any citizen moving out of the country with the purpose of employment, without any specific duration is considered to be an NRI.

Get free legal advice now

NRE accounts: An overview

The NRE accounts can be created by an individual or company to manage their personal and business finances along with making financial investments in their home country. It is a completely secured account under which all the foreign currency amount deposited is converted into INR (Indian Rupees). Without any restrictions, the complete amount can be transferred into this account, along with no tax liabilities. With the availability of the international debit card, the transfer of the amount can be done 24*7. Additionally, the linking of the investment accounts with the NRE accounts can be done easily.

NRO accounts: An overview

The NRE and NRO accounts are quite similar, however, NRO accounts have additional benefits of easy transfers across NRE accounts as well, and the amounts can even be deposited in foreign currency. The NRO accounts are the most suitable options for individuals who are willing to deposit their earnings through rents, salaries, etc. However, in the case of NRO accounts, the individual is liable to pay taxes with an interest rate of up to 30% with the additional taxes that are applicable.

Under both the NRE and NRO accounts, the individuals are liable to maintain a certain amount in their accounts, failing which they might have to pay penalties.

NRE and NRO accounts difference

Confused about which account is the most suitable option for you to get your savings and finances managed back in your home country. Here are all the NRE and NRO accounts differences that you must look into before opting for one:

  • The NRE account is used to manage all the finances and foreign earnings, while the NRO account is used for the financial management of the earnings made in the home country, like rent, dividends, etc.
  • In the case of NRE, the risks of exchange rates are higher while transferring foreign currency to Indian currency due to conversion loss and fluctuations in currency parameters, unlike NRO which is safer in the case of exchange rates.
  • The NRE account is not liable to taxes, while the transactions and principal amount are all liable to taxes with specific interest rates.
  • The NRE account can be opened as a joint account by two NRIs while the NRO account can be opened by an Indian resident and an NRI, or just jointly by two NRIs.
  • Under the NRE, the Indian currency is repatriable, while in the case of NRI, the currency is chargeable.

NRI legal services

Conclusion

So, if you are planning to move out of the country due to employment reasons but have a family responsibility or financial management issues, then getting an NRE and NRO accounts according to your requirements are the best options to land on. As such, while NRO accounts are the most suitable for account management within the country, the NRE account is the most suitable for foreign transactions and getting rid of the liability of taxes.

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NRE and NRO Accounts: Savings From Across the Globe

226

Being a non-resident Indian (NRI) maintaining and keeping regular updates about your finances and accounts might feel like a tough deal when there is no one back at the home country to look after it. Residing outside the country and continuing with your savings account in the country could lead to a big financial mess and further hefty penalties. But, there is always a way out. You need not start from scratch to move overseas. And to the rescue are NRE (Non-Resident Rupee Account) and NRO (Non-Resident Ordinary Rupee) accounts, which are the most viable options for an individual to keep earning, saving, and depositing their amounts to retain their finances in the most secured way. As per the guidelines set up by FEMA, having a savings account in India being an NRI is illegal.

  1. NRI parameters according to ITA and FEMA

  2. NRE accounts: An overview

  3. NRO accounts: An overview

  4. NRE and NRO accounts difference

  5. Conclusion

 

Before knowing the NRE and NRO accounts difference, one must exactly know what these are for and the benefits that they offer.

NRI parameters according to ITA and FEMA

After shifting from the home country, one might be considered as an NRI by the FEMA but not by the ITA due to the varying number of days for which the individual has been away from the country.

As per the Income Tax Act, 1961, an individual moving out of the country for employment purpose is considered an NRI if they have not been present in the country for a duration of more than 181 days, over the previous four years.

As per the Foreign Exchange Management Act 1999, any citizen moving out of the country with the purpose of employment, without any specific duration is considered to be an NRI.

Get free legal advice now

NRE accounts: An overview

The NRE accounts can be created by an individual or company to manage their personal and business finances along with making financial investments in their home country. It is a completely secured account under which all the foreign currency amount deposited is converted into INR (Indian Rupees). Without any restrictions, the complete amount can be transferred into this account, along with no tax liabilities. With the availability of the international debit card, the transfer of the amount can be done 24*7. Additionally, the linking of the investment accounts with the NRE accounts can be done easily.

NRO accounts: An overview

The NRE and NRO accounts are quite similar, however, NRO accounts have additional benefits of easy transfers across NRE accounts as well, and the amounts can even be deposited in foreign currency. The NRO accounts are the most suitable options for individuals who are willing to deposit their earnings through rents, salaries, etc. However, in the case of NRO accounts, the individual is liable to pay taxes with an interest rate of up to 30% with the additional taxes that are applicable.

Under both the NRE and NRO accounts, the individuals are liable to maintain a certain amount in their accounts, failing which they might have to pay penalties.

NRE and NRO accounts difference

Confused about which account is the most suitable option for you to get your savings and finances managed back in your home country. Here are all the NRE and NRO accounts differences that you must look into before opting for one:

  • The NRE account is used to manage all the finances and foreign earnings, while the NRO account is used for the financial management of the earnings made in the home country, like rent, dividends, etc.
  • In the case of NRE, the risks of exchange rates are higher while transferring foreign currency to Indian currency due to conversion loss and fluctuations in currency parameters, unlike NRO which is safer in the case of exchange rates.
  • The NRE account is not liable to taxes, while the transactions and principal amount are all liable to taxes with specific interest rates.
  • The NRE account can be opened as a joint account by two NRIs while the NRO account can be opened by an Indian resident and an NRI, or just jointly by two NRIs.
  • Under the NRE, the Indian currency is repatriable, while in the case of NRI, the currency is chargeable.

NRI legal services

Conclusion

So, if you are planning to move out of the country due to employment reasons but have a family responsibility or financial management issues, then getting an NRE and NRO accounts according to your requirements are the best options to land on. As such, while NRO accounts are the most suitable for account management within the country, the NRE account is the most suitable for foreign transactions and getting rid of the liability of taxes.

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