Difference Between NRE & NRO Account
Difference Between NRE & NRO Account- Mahesh is a non-resident Indian (NRI) who lives in the United Kingdom. He is doing well in the work that he did there. He has a dependent brother in India to take care of him and to transfer funds to his non-resident external account (NRE) regularly. His regular non-resident account (NRO) is added at the appropriate time.
Mahesh’s affection for his brother made his coworker Andrew curious. Andrew wanted to know more about these accounts which Mahesh was dealing with despite his presence abroad. Here’s how to handle Andrew’s queries:
|Basis||NRE Account||NRO Account|
|Acronym||Non-Resident External Account||Non Resident Ordinary Account|
|Meaning||It is an account of an NRI to transfer foreign earnings to India||It is an account of an NRI to manage the income earned in India|
|Taxability||Interest earned is tax-free||Interest earned is taxable|
|Reparability||Can repatriate||Can repatriate the interest amount, the principal amount can be repatriated within the set limits|
|Joint Account||Can be opened by two NRIs||Can be opened by an NRI along with an Indian citizen or another NRI|
|Deposits and Withdrawals||Can deposit in foreign currency, and withdraw in Indian currency||Can deposit in foreign as well as Indian currency, and withdraw in Indian currency|
|Exchange Rate Risk||Prone to risk||Not prone to risk|
Difference between NRE & NRO Accounts
- A Non-resident external account (hereinafter “NRE account”) is nothing but a bank account of NRI opened in India, to keep his foreign earnings. On the other hand, a Non-resident ordinary account (hereinafter “NRO account”) is nothing but a bank account opened in India to keep incomes that are earned in India. These incomes may include rent, dividend, pension, or interest income, etc.
- All NRE Accounts are exempt from tax. Neither the balance nor the interesting part(s) earned on these accounts is taxable in India. however it is to be noted that interest earned on an NRO account is taxable at the rate of 30% as per Income Tax Act 1961 (“IT Act, 1961”).
- The principle and accumulated interest amount in an NRE account are free for repatriation. In other words, one can transfer the amounts to his foreign account in case of an NRE account. On the other hand, the interest amount can be easily repatriated; however, there is a restriction of USD 1 million caps in a financial year in case the principal amount is repatriated.
- Income earned outside India can be easily deposited into any of these accounts of NRI. But income earned in India can be deposited only into the NRO account.
- No involvement of the currency rate is there in case of deposit or withdrawal is being made from the NRO account. On the other hand, currency fluctuations make you prone to exchange rate risks.