Banking has always been a very intriguing topic for Non Resident Indians (NRIs) and the topic “Why is it important to have an NRE/NRO account?” has come across their minds at least once for sure. In this article, we will guide you through why these accounts are important and how you can benefit from them in the most efficient ways.
NRE and NRO Account: Understanding the Difference
Before we start to understand the benefits of these accounts, we must understand what the NRE and NRO Bank accounts are and their importance.
The government of India has made it mandatory for NRIs to hold a NRE/NRO account in India for their transactions. As per the law, it is illegal for NRIs to hold a savings account in their name in India.
It can cause a big trouble for NRIs if they have earnings both in India and abroad. The struggle in handling the finances, managing bank accounts in different countries, sending or receiving money from their home accounts can all be managed through the NRE and NRO Accounts. Before we move ahead, it’s important to understand the meaning of these two accounts:
Non Resident External (NRE) Account: A NRE Account is maintained for the purpose of parking the funds earned outside India. It is a Indian Rupee dominated account which means all the funds that you deposit in this account is converted into INR. It can be opened in the form of a Savings, Current, Recurring or Fixed Deposit. The principal as well as the interest earned on this account is completely and freely repatriable which means that you can transfer the funds in the NRE Account to your overseas accounts without any restrictions and taxes.
Non Resident Ordinary (NRO) Account: A NRO Account is used for the purpose of maintaining the income that is generated in India that can be in the form of rent from a property held in India or monthly income such as salary or pension etc. It is too a rupee dominated account but you can receive funds in both Indian as well as foreign currency. It can be opened in the form of a Savings, Current, Recurring or Fixed Deposit.
Unlike an NRE account which is tax-free, there is tax on NRO accounts. The interest earned on the NRO account is subject to TDS (Tax Deducted at Source) at 30% along with surcharge and education cess. But you need not worry about that. You can opt for a tax refund based on your income tax slab.
Here is a list of the Income Tax Slabs for your reference. NRIs can choose between old and new tax slab regimes given below.
| Old Tax Slabs | Rates | New Tax Slabs | Income Tax Rates |
|---|---|---|---|
| Up to Rs 2.5 lakh | Nil | Up to Rs. 3 lakh | Nil |
| Rs. 2.5 lakh to Rs. 5 lakh | 5% | Rs. 3 lakh to Rs. 6 lakh | 5% |
| Rs. 5 lakh to Rs. 10 lakh | 20% | Rs. 6 lakh to Rs. 9 lakh | 10% |
| Above Rs. 10 lakh | 30% | Rs. 9 lakh to Rs. 12 lakh | 15% |
| – | – | Rs. 12 lakh to Rs. 15 lakh | 20% |
| – | – | Above Rs. 15 lakh | 30% |
Now, we have a basic idea about these accounts. Right? In order to get a better hold on their purpose and importance, we have made a comparison table for your reference:
Compare and Contrast: NRI Bank Accounts
| Factors to consider | Non Resident External (NRE) Account | Non Resident Ordinary (NRO) Account |
|---|---|---|
| Purpose | For income earned outside India | For income earned from India (pension, rent etc.) |
| Currency | INR | INR |
| Joint Account Holder | Only NRIs/ varies from bank to bank | Both NRIs as well as Residents |
| Tenure of Fixed Deposits | 1 year to 10 years | 7 days to 10 years |
| Interest | Up to 7.81%* | Up to 7.30%* |
| Repatriation (transfer of money from Indian bank account to foreign bank account) | Both Principal (money invested initially) and Interest completely repatriable | Up to a maximum of 1 million USD per financial year |
| Tax Deductions | No tax | Tax on Interest earned (not on principal amount): 30% tax + surcharge + education cess will be deducted at the source of interest earned in India |
Till here, we have discussed what are the NRE and NRO Accounts, why is it important for NRIs to have them and what are the various factors to consider while opting for them.
After all this, a doubt still remains. Are there any benefits of these NRI Bank Accounts? Why should an NRI opt for them? On that note, we will now try to cover the various benefits of holding the NRE or the NRO Account and understand what makes them a viable choice.
Benefits of NRE/NRO Bank Account for NRIs
| Benefits | |
|---|---|
| Non Resident External (NRE) | Non Resident Ordinary (NRO) |
| - Park money earned abroad and earn tax-free interest up to 6.80%* - 24*7 withdrawals using International Debit Cards - Invest in opportunities such as Mutual Funds, IPOs etc. - Link NRE Account to a PIS Account and trade in Indian stocks - Convenient Banking Experience - Repatriate funds abroad fully and freely | - Maintain the income generated in India from sources such as pension, rental income etc without any hassle - Earn interest on the funds in the account up to 7.30%* - Invest in opportunities such as Mutual Funds, IPOs etc. - Link NRO Account to a PIS Account and trade in Indian stocks - Convenient Banking Experience |
So NRIs, as soon as you get the Non-Resident Status, make sure you convert your existing resident accounts into NRE/NRO Accounts or opt for a new NRE/NRO Account to enjoy the multiple benefits and ease of NRI Banking.
