If you are an Indian living abroad, there are individual specific accounts that you can hold in India. However, you have to be qualified as an NRI. A Non-Resident Indian or NRI is an Indian citizen living outside the country for any reason – professional or otherwise for a total of 183 days in the previous fiscal year. The days may be continuously or in fragments but must total to more than 183.
If you are an NRI, you have the option to maintain a Non-Resident External Rupee Account (NRE Account) or Non-Resident Ordinary Rupee Account (NRO Account). Below are the differences between the two.
Definition – Both these accounts have different scopes
NRE Account – These are for the funds that you earn abroad but wish to transfer to India. The funds in these accounts are maintained in INR only. For example, if you live abroad and want to share a monthly expenditure to an account for your relative living in India, you’d have to open an NRE account.
NRO Account – These are for the funds that you earn in India at the time when you are living abroad. These funds, as are accrued in India only, are also held in INR only. For example, If you live in Canada, but have a property in India where you earn monthly interest via rent, these funds would be parked in your NRO account.
Repatriation – Repatriation means the transfer of funds from these accounts in India to your account abroad.
NRE account – the funds held in this account can be transferred or repatriated entirely at any time for any amount.
NRO account – the funds in these accounts can be transferred; however, only an amount of up to 1 mn USD is permitted to be transferred in each fiscal year.
FX Risk – Foreign exchange risk refers to the risk that one faces due to the conversion of one currency to another
NRE Account – These funds are transferred from abroad and held in an INR account and hence face the exchange risk.
NRO Account – These funds are accrued in India only and hence are earned in INR and held in INR. Thus, there is no exchange risk involved.
Taxability – The tax implications of both these accounts are different.
NRE Account – The funds in these accounts are not taxable in India as they have been earned abroad.
NRO Account – The funds are taxable under the Income Tax laws in India as these are earned in India and hence subject to the tax regulation of India.
Deposits – The tenor of the deposits also vary for these accounts
NRE Account – The deposits made out of the funds of the NRE account can only be made for a tenor of a minimum of 1 year to a maximum of 3 years. However, banks may decide if they are capable of holding an NRE deposit for more than three years.
NRO Account – The deposits made out of the funds from NRO accounts can be as per the tenor for any Indian account.
In conclusion, once you understand the differences between these accounts, you can choose one according to your need and earnings.
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