Once your residential status changes to NRIs, you need to open an NRI account to meet your transactional requirements in India. There are two types of NRI savings accounts – NRE and NRO savings accounts – and three types of NRI fixed deposit accounts – NRE, NRO and FCNR FD accounts. Let’s understand the difference between NRI and NRE accounts.
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NRI vs NRE Accounts
NRI stands for Non-Resident Indians. NRIs are Indian citizens who reside outside the country for a particular period of time in a financial year, for employment, education or other reasons. NRE account is one of the NRI accounts that can be used to save foreign currency in a bank in India.
What is an NRI Account?
An NRI account allows Non-Resident Indians to deposit, maintain and invest money in India. These NRIs need to open an NRI account as they can’t operate the regular resident account after the change in their residential status. These accounts are offered by Indian banks and allow NRIs to manage their finances in India in a convenient and secure way.
What is an NRE Account
A Non-Resident External (NRE) account is a type of bank account meant for Non-Resident Indians (NRIs) who reside outside India but have financial interests and transactions in India. NRE account allows NRIs, who reside and earn abroad, to hold their foreign earnings in Indian rupees and is maintained in Indian banks.
The difference between NRI and NRE accounts is that an NRI account can be both NRE and NRO accounts, whereas an NRE account is one of NRI accounts. Technically, there is no NRI account, rather it is a combination of an NRE and NRO accounts which are opened separately and serve different purposes.
5 Key Differences Between NRI and NRE Accounts
Since NRIs conduct transactions through NRE and/ or NRO accounts, it is essential to know which account is suitable based on the transactions being carried out. Listed below are the differences between both NRI and NRE accounts.
Difference in Definition
The full form of NRE is Non-Resident External. You can use an NRE account to deposit and manage your income earned abroad. NRI account, on the other hand, as mentioned above, consists of both NRE and NRO accounts. An NRO account can be opened to manage income earned by NRIs in India, such as rent, dividends, pension, etc.
Difference in Terms of Taxability
Tax laws for both NRI accounts are different. Interest earned on an NRE account is completely exempted from taxes in India. Whereas, account holders need to pay tax on the interest amount that they earn in an NRO account.
Difference in Repatriability
Funds in an NRE account are freely and fully repatriable from India to an overseas account. Which means NRIs can transfer the principal amount and the interest earned thereon without any restrictions. In the case of an NRO account, you can’t repatriate above $1 million in a financial year.
Difference in Terms of the Purpose of Opening the Account
You need to open an NRE bank account if you want to send money to your family in India. Moreover, you can use an NRE account to invest in India if you want to repatriate the principal, dividends and interest abroad seamlessly.
NRIs can’t deposit the money they earn in India in an NRE account. Hence, they need to open another NRI account i.e. NRO account to deposit and maintain their earnings sourced in India. The money they earn in India includes rent from a residential property in India. It could also be the interest arising from fixed deposits and other asset classes. NRIs can open an NRO account to save such income and invest in India on a non-repatriable basis, as well as pay bills and buy products and services, in India.
Difference in Terms of Deposits and Withdrawals
This is one of the major differences between an NRE and NRO account. You can deposit money in foreign currencies in an NRE account. In an NRO account, you can deposit money in INR (Indian Rupees). However, foreign currencies can also be transferred in an NRO account.
Both accounts allow you to withdraw money in INR.
Conclusion
Both NRE and NRI accounts have many differences and can be opened to meet different purposes. However, it is clear that an NRE account is the best bet for individuals who wish to deposit their overseas earnings in India or want to invest in asset classes in India on a repatriable basis. NRO account is the only option for NRIs to save and manage their earnings in India.
Due to lots of information and documentation required to apply for NRI accounts, NRE/ NRO account opening process is lengthy and cumbersome elsewhere but you can download SBNRI App to apply for an NRI account with nominal documentation in just 10 minutes.
You can also click on the button below to open an NRI account. Also visit our blog and Youtube Channel for more details.
