What Can NRIs Do with Their NRE and NRO Account
For NRIs, opening an NRE or NRO account is a viable option to manage their income in India and abroad. Read on to know more about what NRIs can do with these accounts.
As per the FEMA (Foreign Exchange Management Act) guidelines, an NRI (Non-Resident Indian) cannot maintain a savings or fixed deposit bank account in their name in India. Once a person achieves NRI status, keeping a resident Indian account can attract a heavy fine. For NRIs, the Indian government has made special provisions; a person can open a Non-Resident External account or Non-Resident Ordinary account. These accounts help him/her in two ways. One, the person can remit his/her earnings in a foreign country either through salary or income from the business to India at any time as per his/her convenience. Two, he/she can also retain the income in India through assets in the home country itself.
What is an NRE Account?
NRE account is a type of NRI account that allows you to deposit the foreign earnings in Indian banks. You can open this account as a savings account, current account, or fixed deposits. The amount you deposit in the NRE account is converted into INR as per the prevailing exchange rate.
What is an NRO Account?
NRO account is a Rupee-dominated account wherein you can deposit the income earned in India through house rent, dividends from investments, etc. The deposits and withdrawals are made in Indian Rupees only.
What Can NRIs do with an NRE and NRO Account?
To all NRE or NRO account holders, the Indian banks provide International debit cards. You can use this card for various transactions overseas, including shopping overseas, booking hotels and flight tickets, and even cash withdrawal.
Another effective use of an NRE or NRO account for the non-resident Indian account holders is that it allows them to link their NRI account to their investment account in India. This means he/she can seamlessly divert the funds towards the investment of his/her choice, be it mutual funds or any other money market instruments. He/she can also instruct the bank to auto-debit the amount towards investments on a specific day of the month.
A lot of NRIs use the NRE account to avail tax benefits in India. The interest earned from the deposits held in the NRE account is exempted from tax. Thus, he/she can reduce his/her tax liability in a financial year by managing the funds in this account. The deposits held in the NRE account (both the principal amount and the interest) are fully repatriable without any charges. However, if the person has an NRO account, the interest earned is taxable, and the repatriation of the funds is limited to USD 1 million in a financial year.
No matter if a person opens an NRE account or an NRO account, he/she can open a joint account. For an NRE account, the joint account owner can be an NRI or a resident Indian. For an NRO account, the joint owner must be a resident Indian. Thus, these accounts allow him/her to manage the funds with the family members easily.
One of the important things to know about an NRE account is that since the foreign currency is converted to INR at the time of deposit, it is exposed to exchange rate fluctuation. On the other hand, the NRO accounts are much safer; since the deposits are made in INR, there is no exchange rate fluctuation risk.
If your main source of income is from your employment abroad, then it is better to open an NRE account as it can help you move the funds freely between Indian and the country of residence. But, if you have your major source of income in India, then you can maintain an NRO account as it helps you deposit the earnings in India with ease.
If you have opened both the accounts, then you can easily transfer money within these accounts subject to the bank’s rules and regulations.