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Managing Finances Abroad: Which Account is Right for You – NRE or NRO?

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Do you wish to invest money in your hometown or collect your foreign income after you return to India? As an NRI, you must learn the difference between NRE and NRO accounts. On that note, this post presents the difference between NRE & NRO.

Introducing You to the Benefits of NRE or Non-Resident External Accounts

The non-resident external account is a rupee-denominated account opened by NRIs. An Indian citizen residing in India can open this type of account to deposit foreign earnings in the currency of that particular country. The prime benefit of having an NRE account is that it offers liquidity, thereby allowing for the repatriation of funds from that account to the NRI’s hometown when needed.

What Do You Mean by NRO or Non-Resident Ordinary Accounts?

NRIs can open an NRO or non-resident ordinary account. These accounts help NRIs manage deposits and income in India, such as rent, pensions, dividends, and more. You can get funds in foreign or Indian currency. However, one note to remember is that NRIs can only withdraw Indian currency via this account. The reason is that NRO accounts are kept in the rupee and cannot be repatriated into the currency of the international country.

Tabular Format Indicating Which Account is Better for NRIs: NRO or NRE?

Here’s a table that presents the difference between NRE and NRO bank accounts:

Basis NRO Accounts NRE Accounts
Definition NRO accounts help NRIs save earnings from India in rupee. NRE accounts let Indians save their foreign earnings in India in rupee
Taxation Interests earned in these accounts are tax deductible at the source Deposits in the NRE accounts are not subject to tax. So, the principal amount and earned interest are exempt from the tax.
Transferability (or Repatriability) Money from this account can easily be repatriated after payment of the taxes at USD 1 million in one fiscal year. Funds from this account can be repatriable, i.e., the interest earned and principal amount are transferable.
Prime Purpose NRO accounts help you save earnings from India in rupees. The earnings include income, rent, sale of property, and dividends. You need to choose NRE accounts when you wish to maintain or hold overseas earnings in rupee. In general, the NRE accounts are best suited in case you want to keep the savings in liquid.
When to Open the Account Someone can open an NRO account with the NRI and Indian citizens. The NRE accounts are opened by another NRI and their close relative in India.

Final Verdict

What is the meaning of NRI? Its full form is a non-resident Indian. Thus, from the above implications, it is clear that NRE accounts help NRIs store foreign currency to convert into rupees. On the other hand, the NRO account keeps both Indian money earned as well as foreign income. But NRO accounts come with a limit of USD 1 million for every fiscal year.

The NRE accounts, nevertheless, do not have such limitations. So, it entirely depends on your requirements. After determining your needs, you can talk to the bank and open an NRE or NRO account accordingly. For more details on NRE and NRO accounts, consult the IDFC FIRST bank.