NRE & NRO: Full Form and Key Differences
NRE and NRO Full Form
- Non-Residential External (NRE)
- Non- Resident Ordinary (NRO)
As an NRI, you have access to two primary types of accounts: Non-Residential External (NRE) Accounts and Non-Resident Ordinary (NRO) Accounts.
Differences Between NRO And NRE Accounts
Feature | NRE Account | NRO Account |
Account Currency | Indian Rupees (INR) | Indian Rupees (INR) |
Source of Funds | Foreign earnings and remittances | Income earned in India |
Taxation on Interest | Usually tax-free in India | Subject to taxation in India (TDS applied) |
Usage | Can be used for local payments in India | Can be used for local payments in India |
Purpose | Investment, savings, and transactions | Managing income earned in India |
Interest Earnings | Tax-free interest earned | Taxable interest earnings (subject to TDS) |
Purpose of Account | Mainly for foreign income | Mainly for Indian income |
Foreign Exchange Risk | No risk as account is in INR | Subject to foreign exchange risk |
“NRE” and “NRO” are terms often used in the context of banking and financial accounts for Non-Resident Indians (NRIs) in India. These terms refer to two different types of accounts that NRIs can hold in Indian banks:
- NRE (Non-Residential External) Account: An NRE account is a type of bank account that allows NRIs to park and manage their foreign earnings in Indian rupees. The key features of an NRE account include:
- It is maintained in Indian rupees (INR).
- Funds in this account can be freely repatriated (transferred back) to the foreign country of the account holder without any restrictions.
- Both the principal amount and the interest earned in the account are freely repatriable.
- The account can be used for various transactions, including investments, remittances, and bill payments in India.
- Interest earned on NRE account balances is usually tax-free in India.
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- NRO (Non-Resident Ordinary) Account: An NRO account is another type of bank account designed for NRIs to manage income earned in India. The main features of an NRO account are:
- It can be maintained in Indian rupees (INR).
- It is used to manage income earned in India, such as rental income, dividends, pensions, etc.
- Funds in this account can be repatriated up to a certain limit (usually $1 million per financial year) after fulfilling certain conditions and obtaining necessary approvals.
- The interest earned on NRO account balances is subject to taxation in India. Tax deduction at source (TDS) is usually applied to the interest earned.
- NRO accounts can be used for local payments and transactions within India.
The key distinction between NRE and NRO accounts lies in the nature of the funds and their repatriation. NRE accounts are primarily meant for foreign earnings that are brought into India and can be repatriated freely, while NRO accounts are used for income earned within India and have more limited repatriation options.
Note: It’s important to note that these regulations and features may be subject to change, so it’s recommended to consult with a financial advisor or the relevant authorities for the most up-to-date information before making any financial decisions.
