NRO and NRE accounts: Your A-Z guide

Aman Saxena

NRE and NRO accounts provide NRIs with ways to send money to India- to support their families, manage properties, make investments, deposit earned income in India, and more.

NRI accounts differ from Indian resident bank accounts as they are able to accept foreign currency deposits. For both NRO and NRE accounts, you can open a current, savings or fixed deposit account, with specific interest rates determined by the banks.

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Difference between NRE and NRO account

Here is a quick table to compare all the differences between NRE and NRO accounts⁵:

NRE Account NRO Account
Open with Foreign currency Indian or foreign currency
Taxation Tax-free Taxable
Currency held in INR INR
Repatriability Freely repatriable Repatriable, post taxes and under certain conditions
Joint account of two or more NRIs Allowed Allowed
Joint account with an Indian resident Not Allowed Allowed
Interest rate Determined by the banks Determined by the banks

The main differences between an NRE and NRO account are the funds used to open an account, taxation, and repatriability.

An NRE account can only be opened using foreign currency, while NRO accounts can be opened with both foreign funds and Indian rupees.

In regards to taxes, an NRE account is tax-free in India but there are taxes applicable for the NRO account.

While an NRE account is fully repatriable tax free, under an NRO you can still repatriate the balance but you are required to pay taxes on the repatriated amount.

This crucial difference is why the NRO account is more ideal for those that want to keep their funds in the country. Additionally, for joint accounts, NRO accounts can be held with an Indian resident or with another NRI. NRE joint accounts can only be done with another NRI.

What is an NRE account?

A Non-Resident External (NRE) Account is opened and maintained by NRIs using foreign funds, and is held in rupees. The accounts can be held as a savings account, current, recurring or fixed deposits.

With an NRE account, you can easily deposit your foreign earnings into this account from your country of residence. The amount that is deposited from the foreign currency is converted into Indian rupees as per the prevailing exchange rate.

With a savings or current account, you can utilize the account to pay bills or issue checks for payments in India- even if you are miles away.

You can also appoint an Indian resident as a Power of Attorney (POA) for your account who can use the debit card and cheque book. With an NRE deposit, you can park your foreign earnings in a fixed term deposit of 1-3 years that is held in Indian rupees.

In all cases, you earn Indian interest rates on the converted rupee amounts that you send over, and both the principal and interest are tax-free in India. The rates of interest on the accounts will be per the guidelines issued by the Department of Banking Regulations³.

The most attractive part of an NRE account is that any amount is fully repatriable to your resident country- tax-free. Overall, NRE accounts provide a tax-free space for remittances, ample liquidity, an easy way to pay for expenses in India, and a medium to invest in India as well.

What is an NRO account?

A Non-Resident Ordinary (NRO) account can be in the form of a savings account, current, recurring or fixed deposits. The account accepts foreign currency as well as Indian rupees to open an account, with the balance being held in Indian rupees. It can be held jointly by two NRIs or can be held jointly with an Indian resident.

The account can also be used for local Indian payments, so for example to pay water, electricity or phone bills. Or if, for example, you have tenants in a flat that you own in India, this is a good account to deposit the earnings. The NRO account can take remittances from outside India, certain cash amounts and transfers from other NRO accounts.

The NRO account is subject to all applicable taxes in India. Due to the taxable event that would occur under repatriation, an NRO account is considered a convenient way for NRIs to deposit both their earned income in India while also accepting foreign deposits.

Due to its restricted repatriation and tax implications, the NRO account is best suited if you are not intending to send your balances out of India. It can be seen as a vehicle to deposit your income in India such as rent or dividends. It is also more conducive if you want to open an account jointly with a person resident in India.

With both accounts types, there are fees levied by the bank to maintain the account. Check with your bank for your applicable fees.

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Tax on NRO/ NRE accounts⁶

Income from interest on balances from the NRE account is exempt from income taxes. Income from balances in an NRO account is subject to Indian income and wealth tax laws.

To note, this information is given in a general capacity and should not be taken as tax advice. Tax consequences are based on you as an individual, so please consult a tax advisor before taking any actions.

Can I open an NRO/ NRE account?

You can begin the process to open an NRO/NRE account online with all major commercial bank websites. It is possible to open a new account during a temporary visit to India for any eligible NRIs using foreign currency notes or travelers' cheques, as long as the bank can deem that you don’t intend to become a resident of India.

As mentioned, joint accounts are available for both NRE and NRO. If assigning a POA, the account would have to be opened in the NRI’s name and not the POA’s. A PAN card is required for account holders. If the account is joint, then all documents are required for both individuals.

Recently, the Aadhaar card has become a prominent form of identification in India. However, since the Aadhaar card is only issuable for those that reside in India for 182 days or more within the past 12 months, it is not required for NRIs to open an NRI account.

How to open an NRI account

Opening an NRI account, either NRO or NRE can be done in person or remotely. For all the major commercial banks, there are online applications on their websites available to begin the process.

Typically you are asked to fill in your information, including current residence, passport number, and contact information, and once it is submitted, the bank will give you a call to continue with the next steps.

NRO/ NRE accounts can also be opened in person at a bank in India.

Documents required to open an NRE/ NRO account

  • a copy of Passport
  • a copy of PAN card
  • a copy of visa/work permit/permanent residency card
  • 1 passport photograph
  • overseas address proof
  • an Indian address proof

But, before you get started, check with your preferred bank for their specific requirements and what qualifies for each document before starting.

If you qualify as an NRI and are already living abroad, you will need to get the required documents attested by the Indian embassy or the signing authority of a commercial bank branch registered in India before sending them to the bank branch in India.

If possible, it is better to open the account while you are physically in India on your next holiday or work trip.

How to deposit money in NRO/ NRE account

You can deposit money into your accounts in three different ways-

  • Direct remit from your foreign bank account
  • Depositing physical foreign currency at your bank in India when or if you come to visit
  • Transferring funds from an existing NRE account in another bank in India

As the terms for investment and monthly balance maintenance amount varies by bank, you can check what your bank requires online under their NRI services.

Penalty for not converting to NRO account

If you are leaving India for work, carrying on business outside of India or any other reason that indicates that you will reside outside the country, any existing account should be designated as an NRO account⁸.

If that isn’t done and the resident account continues to operate, then it would likely be in violation of the FEMA Act. The penalty would be up to 3x the sum involved, or up to 2 lakh if the amount is not directly quantifiable. If the situation continues without resolution, the penalty can be compounded up to 300% of the amount in question⁹.

To save yourself the risk of these penalties, we suggest converting your accounts at your local bank as soon as possible. It is your responsibility to inform the bank of the change in your residential status and to complete the paperwork to change the accounts.

Sources used for this article

  1. NRIs and PIOs
  2. Residential status
  3. Non-Resident (External) Rupee Account Scheme – NRE Account
  4. RBI FAQ
  5. I am Non-Resident
  6. Foreign Exchange Management (Deposit) Regulations
  8. Compounding of Contraventions under FEMA

All sources checked as of 31 December 2019

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This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.

We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.

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