Articles
Non-Resident External (NRE) & Non-Resident Ordinary (NRO) Accounts for NRIs
| All Non-Resident Indians (NRIs) face a dilemma at the beginning of their NRI status – What kind of bank account should they maintain back home in India? Should it be an NRO account, or should it be an NRE account? Can you have both? What can each be used for? Let’s understand these things in detail. |
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 (NRE) Account | Non-Resident Ordinary (NRO) Account | |
| Currency | Rupee denominated | Rupee denominated |
| Type | Savings, Current or a Fixed / Term Deposit | Savings, Current or a Fixed / Term Deposit |
| Who can open? | NRI | NRI, Resident before becoming an NRI |
| Is repatriation allowed? | Yes | Usually no |
| What can be the source of funds? | Funds remitted from abroad, Funds from another NRE / FCNR account | Funds received from within India |
| Can funds be transferred to another account? | Funds can be transferred from an NRE account to an NRO / NRE / Resident account | Funds can be transferred from an NRO account to an NRO / Resident account |
| Can it be opened jointly with an NRI? | Yes | Yes |
| Can it be opened jointly with a resident? | No | Yes |
| What is the income tax treatment of the interest earned? | Tax free | Taxed as per applicable slab rate |
| Can power of attorney holder open the account? | No | No |
| Can power of attorney holder operate the account? | Yes, can make local rupee payments | Yes, can make local rupee payments |
| Is nomination allowed? | Yes | Yes |
| What is the status of the account when NRI returns to India for good? | Converted to resident account | Converted to resident account |
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Note: Please treat the opinion expressed here as a broad suggestion. Please consult your financial planner / investment advisor before making any investment decision.
Comments
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Feb 19, 2009
Jul 17, 2009
an NRI and has a NRE as well as a NRO a/c with HDFC
Bank can not open a D-mat a/c as long he is in US.
Whereas my son would like to invest his current savings
which he regularly tranfers from US to his NRE a/c at
HDFC Bank , in the shares in India so that his savings multiply
by the time he returns. Please advise whether it is legally
permissible for my son to open a d-mat a/c and link it
with his existing NRO a/c with HDFC Bank..
sunil
I believe there is some dispute regarding taxation / double taxation between the Income Tax Department and the Internal Revenue Service (IRS) of USA.
Due to this, NRIs in USA can not invest in shares or Mutual Funds (MF) in India.
Jul 29, 2009
Please suggest as to what investments should be done by an NRI ( in US ) , in India , so that when he returns to the country after about 3-4 years , he gets the best benefit.
Sunil
This is a great idea for a separate article - I would write about it soon. Thanks for suggesting this!
Oct 04, 2009
Do I need to decalre it somewhere or it is not necessary. Is it legaly ok?
The information you have provided is not enough - is your wife also an NRI? What do you mean by MIS - post office MIS, or some other monthly income scheme?
In any case, it would be better if you confirm with a practicing chartered accountant (CA).
Nov 19, 2009
Please update.
Also , have you been able to work on the topic of Best Investment in India by NRIs in US .
regards,
sunil
Nov 20, 2009
http://www.profitshastra.com
Please let me know if there are any questions.
--
Shashank
I don't think there has been any update on the issue between the income tax department and the IRS... Very unfortunate...
I haven't been able to work on "Best Investment in India by NRIs" yet. But it would be available in a couple of months' time :-)
Dec 10, 2009
I am a NRI in the UK and I wish to send money to India for my family maintenance. Should I need to open any NRI account in India or can I send it to my mother's normal bank account using ICICI net express or other facilities? Look forward to hearing from you.
Many thanks
Indrajith
Jul 25, 2010
IS IT COMPULSURY TO OPEN A NRE/NRO ACCOUNT BY A NRI MOVED OUT OF HIS COUNTRY FOR A LONG TERM PROJECT? WHAT IS THE IMPORTANCE OF NRI/NRO ACCOUNT? WHAT ARE ALL THE BENEFITS? WITH OUT AN NRI/NRO ACCOUNT A NRI CAN'T TRANFER MONEY TO INDIA?
LATHA.
(Follow Me)
My small contribution towards this is that HDFC sucks. Everything is paper based and still they tell you that you can do everything online.
Another small tip - Always open your NR accounts in the early days of your India trip & make sure that accounts work the way you want them before leaving. Otherwise you will end up feeling that SBI express remit was the best thing to ever happen to you.
Best,
Bhalchandra