Features and Differences Between NRE and NRO Bank Accounts

Non Resident External (NRE) Account is normally being used to keep foreign earnings in Indian Bank Accounts by a person who has status of NRI / PIO / OCI. NRE account should only be used to keep money earned from foreign contry and it should not be used to convert your money earned in India either direct or transfer from your existing bank account such as savings bank account or term deposits or current accounts etc. Non Resident Ordinary (NRO) account is being used to keep the money an NRI / PIO / OCI to manage the income earned in India. NRO account also can be used to keep your earning made from foreign country but remember that it can not be repatriating to its original state, ie., converting into foreign currency.

Concept of NRE / NRO Accounts

The Reserve Bank of India (RBI) has created two type deposit accounts aiming to NRI / PIO / OCI customers ie., NRE and NRO accounts. Both of these two accounts are created to provide primarily to persons who reside outside the country.  This facilitate individuals to support their families, paying bills, accepts rental amounts, managing transactions of properties, making investments in various schemes, accepts dividend & pension, deposit earned income in India or a combination of these activities. We will look into more in-depth to both of the accounts -NRE /  NRO- that can be operated by an NRI / PIO / OCI. Whenever a person changes his / her status to NRI / PIO / OCI, his / her normal bank account can also be re-designated into NRO Account.

Account Opening of NRE / NRO

NRE / NRO account can be opened and operated by individually or jointly if they have status of NRI / PIO / OCI. On the other hand, NRO account allows you to jointly open and operate by an NRI / PIO / OCI along with an Indian Citizen who has no status of NRI / PIO / OCI. All commercial banks, cooperative banks, and authorized dealers in India provides facilities to open and operate NRE / NRO accounts by those who have status of NRI / PIO / OCI. To open both of this accounts, individually or jointly, every customer is required to submit their KYC documents along with their application. The account types can be as a savings account, current account, recurring account or fixed deposit account. All these account types in India are maintained in rupees. Foreign currency is required to open an NRE account, while, NRO accounts can open with both foreign currency and Indian currency.

Opening of NRE / NRO accounts can be done in person visiting a bank branch or through online application. Most of the commercial banks accept online applications by visiting their websites. After submitting your online application with required documents, the bank may contact you to continue with the next steps either over phone or via email. The documents that are usually required to open NRE / NRO accounts are:

  1. Passport,
  2. PAN card,
  3. Visa / work permit / permanent residency card,
  4. Passport size photograph,
  5. Address proof (both overseas and Indian addresses).

These document lists may vary to bank to another bank and there will be additions or omissions to be expected. Check with your preferred bank for their specific document requirements and what to be expected from each document before starting.

Taxes on Interest Earned From NRE / NRO Accounts

The interest earned on a NRE account does not charge any type of taxes in India, while NRO account attracts taxes on interest earned by it. NRE accounts are considered to be  a tax-free space for foreign remittances, flexibility on liquidity, a convenient way for paying expenses in India, and an investment source in India as well.

Repatriating Funds From NRE / NRO Accounts

Converting the amount deposited in the bank accounts in Indian Rupees to a foreign currency and utilizing in a foreign country is referred to as repatriating the funds. All types of NRE accounts allow funds deposited could be repatriated in to its original foreign currency. On the other hand, amount deposited in NRO accounts can't be reversed or repatriated into another foreign currency.

Deposits and Withdrawals In NRE / NRO Accounts

NRE accounts allow to deposit in foreign currency, and withdraw either in Indian currency or in a foreign currency, whereas, NRO accounts allow to deposit in foreign currency as well as Indian currency, and allow withdrawals only in Indian Rupees. The deposits made from the foreign currency in both NRE / NRO accounts are converted into Indian rupees as per the prevailing exchange rate.

Power of Attorney For NRE /  NRO Accounts

Both of the NRE / NRO accounts can be operated through an Indian Resident who is authorized as Power of Attorney. The Power of Attorney can make a withdrawal from NRE / NRO Account on behalf of the NRI /PIO / OCI for meeting local expenses.