Non-Resident External (NRE) Account

An NRE account is a Rupee denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account. NRE accounts can be opened by NRIs. Funds can be repatriated from an NRE account. This means that the funds can be freely sent to any other country. An NRE account can contain funds remitted from abroad, or obtained from another NRE / FCNR account maintained in India. Funds can be transferred from an NRE account to an NRO account without any restriction. An NRE account can be held jointly, provided the other person is also an NRI. The interest earned on deposits in an NRE account is exempt from tax in the hands of the NRI. A resident power of attorney holder can not open an NRE account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI. Nomination is allowed for NRE accounts. If the NRI holding the NRE account returns to India and becomes a resident of India, the NRE account is converted into a regular resident account.

Non-Resident Ordinary (NRO) Account

An NRO account is a Rupees denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account. NRO accounts can be opened by NRIs. Regular bank accounts of a person, who becomes an NRI, also get converted into NRO accounts. Funds can not be repatriated from an NRO account. These funds have to be used only for local (within India) payments in Indian Rupees. An NRO account can only contain funds received from within India. Funds can not be transferred from an NRO account to an NRE account. An NRO account can be held jointly with another NRI or with a resident Indian. The interest earned on deposits in an NRO account is taxable in the hands of the NRI as per the applicable income tax slab rates. A resident power of attorney holder can not open an NRO account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI. Nomination is allowed for NRO accounts. If the NRI holding the NRO account returns to India and becomes a resident of India, the NRO account is converted into a regular resident account.

A quick comparison between NRE and NRO accounts

Non-Resident External Non-Resident Ordinary (NRE) Account (NRO) Account Currency Rupee denominated Rupee denominated Savings, Current or a Fixed / Savings, Current or a Fixed / Type Term Deposit Term Deposit NRI, Resident before Who can open? NRI becoming an NRI Is repatriation allowed? Yes Usually no What can be the source of Funds remitted from abroad, Funds received from within funds? Funds from another NRE / India

FCNR account Funds can be transferred from Funds can be transferred Can funds be transferred an NRE account to an NRO / from an NRO account to an to another account? NRE / Resident account NRO / Resident account Can it be opened jointly Yes Yes with an NRI? Can it be opened jointly No Yes with a resident? What is the income tax Taxed as per applicable slab treatment of the interest Tax free rate earned? Can power of attorney No No holder open the account? Can power of attorney Yes, can make local rupee Yes, can make local rupee holder operate the payments payments account? Is nomination allowed? Yes Yes What is the status of the Converted to resident account when NRI Converted to resident account account returns to India for good?

The difference between NRE and NRO accounts

There are two options an NRI interested in opening a bank account in India can choose from an NRE or an NRO account. Are you an NRI keen on getting a bank account opened in India? Then it would be advantageous to know how these two types of accounts differ and which one is right for you. The Government of India has permitted NRIs to open rupee accounts in India in order to repatriate funds from their home countries. The two most common accounts are the NRE and NRO accounts. Lets take a closer look at them. Whats an NRE account? A Non-Resident External (NRE) account is a bank account thats opened by depositing foreign currency at the time of opening a bank account. This currency can be tendered in the form of travelers checks or notes. Whats an NRO account? A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account. It offers the same facilities as an NRE account, except that any repatriation done through this account should be reported to RBI by filling up prescribed forms.

How do NRE and NRO accounts differ? Funds remitted from overseas sources or local funds that would otherwise have been sent to the accountholder abroad can instead be transferred to NRE Accounts. On the other hand, local funds that arent eligible to be remitted abroad must be credited to an NRO account. Can you transfer funds fromanNREto anNROaccount and vice versa? Its easy to transfer funds fromanNREto an NRO account. But its not possible to transfer funds from an NRO account to an NRE account. Once you transfer funds fromanNREtoanNRO account, the amount is non-repatriable. Consequently, you cannot transfer it back. Whats the difference in the tax treatment for interest earned on an NRE and an NRO account? The interest earned on any type of NRO bank as well as the credit balances in this kind of account are taxed under the account holders tax bracket. On the other hand, interest earned on the NRE account is totally exempted from income tax, and the credit balances in the account dont attract any wealth tax. Any gift given to a close relative doesnt attract gift tax.