Difference between NRE and NRO Account | NRE Account | NRO Account

Summary

In this video, Anchal Pathak explains the key differences between NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts for NRIs. While both accounts serve NRIs with income in India and abroad, the NRE account is tax-free and allows for repatriation of funds without limits, while the NRO account has restrictions on transferring principal amounts and imposes taxes on interest. Viewers are guided on when to choose one account over the other based on their financial needs, including investment or managing family income in India.

Takeaways

• 😀 NRIs (Non-Resident Indians) face challenges in managing finances both in India and abroad due to foreign exchange and tax rules.
• 😀 The Foreign Exchange Management Act (FEMA) prohibits NRIs from holding regular savings accounts in India once they become NRIs.
• 😀 NRIs can open NRE (Non-Resident External) accounts or NRO (Non-Resident Ordinary) accounts to manage their income in India and abroad.
• 😀 NRE accounts are for depositing income earned outside India, while NRO accounts are for income earned in India, such as property rent or dividends.
• 😀 NRE accounts are tax-free, while NRO accounts are subject to tax on interest earned.
• 😀 NRE accounts can be used for savings, recurring, current, or FD accounts, and can be operated from anywhere in the world via internet banking.
• 😀 NRO accounts allow NRIs to withdraw in Indian rupees, with a limit on repatriating principal but no limit on interest repatriation.
• 😀 NRE and NRO accounts both allow joint accounts, but NRE joint holders must be NRIs, while NRO accounts can have a resident Indian as a joint holder.
• 😀 NRE accounts are affected by exchange rate fluctuations, whereas NRO accounts are not.
• 😀 NRIs should choose between NRE and NRO accounts based on their needs—NRE for investments and NRO for securing family finances in India.

Q & A

What is the primary focus of the video?

The video focuses on explaining the differences between NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts, particularly for NRIs (Non-Resident Indians) who have income both in India and abroad.

Why can't NRIs keep regular savings accounts in India?

According to the Foreign Exchange Management Act (FEMA), NRIs are not allowed to keep regular savings accounts once they become non-residents. They are required to close their regular accounts and open NRE or NRO accounts.

What is an NRE account and how does it work?

An NRE account is for NRIs to manage income earned abroad. Deposits in this account must be in foreign currency, which gets converted to Indian rupees. The account is tax-free, and funds can be transferred abroad without restrictions. It can also be operated via internet banking and linked to auto-debits for Indian investments.

What are the benefits of an NRE account?

The benefits of an NRE account include tax-free income, the ability to transfer funds to and from international accounts, operation through internet banking, and the flexibility to make automatic investment payments in India. Additionally, joint NRE accounts can only be held with other NRIs.

What is an NRO account used for?

An NRO account is used for managing income earned in India, such as property rents, mutual funds, or dividend income. This account allows deposits in both Indian and foreign currencies, but withdrawals are only in Indian rupees.

Can NRIs transfer money between NRE and NRO accounts?

Yes, NRIs can transfer money between NRE and NRO accounts. However, funds from NRO accounts cannot be transferred to NRE accounts.

How does the exchange rate affect NRE and NRO accounts?

The exchange rate affects NRE accounts because they hold foreign currency, so fluctuations impact the amount in the account. In contrast, NRO accounts are in Indian rupees, so exchange rate changes do not affect them.

What is the tax situation for income in NRE and NRO accounts?

Income in NRE accounts is completely tax-free, while income in NRO accounts is subject to taxation. However, if NRIs live in a country with a double tax avoidance agreement with India, they can reduce the tax on NRO account income.

What is the repatriation limit for NRO accounts?

In NRO accounts, there is a limit on repatriating the principal amount, which cannot exceed $10 lakh in a financial year. However, there is no such limit for repatriating interest earned.

What is the main difference between NRE and NRO joint accounts?

NRE joint accounts can only be opened with other NRIs, while NRO joint accounts can be opened with both NRIs and resident Indians.