NRE accounts and NRO accounts hold special significance if you are an NRI or a non-resident Indian. In case you are an NRI, it is manatory for you to hold an NRE account or an NRO account for any financial transactions you wish to conduct. This is a regulation set forth by the Reserve Bank of India, acting under the direction of the Government of India. If you are a non-resident Indian, you cannot hold a savings bank account in India, like a regular Indian citizen can. In case you are an NRI who is earning money within India and abroad, you may come across some hurdles, and both NRO and NRE accounts can solve your financial management issues to a large extent. Some aspects of banking that these accounts help with are in terms of the management of bank accounts in other countries and the transfer and receipt of money from home countries to other countries.
An NRE Account and an NRO Account Explained
Before you grasp the differences between these two accounts, you should be well-versed with what the two accounts entail:
- NRE Account - NRE stands for Non-resident external and this account is started for the main purpose of monitoring money that is generated outside Indian shores. It is an account that is largely governed by the Indian rupee. This means that any funds which are transferred into such an account are automatically turned into INR. It is possible to open such an account as a savings account, a recurring account, a fixed deposit, or a current account. The principal deposited and the interest that is earned on such an account are freely and completely repatriable. Hence, you can shift funds that are in your NRE account into your accounts abroad without any taxes levied or limits fixed.
- NRO Account - In case you are an NRI, but are generating an income within India, you can track your revenue with an NRO account, a non-resident ordinary account. For instance, you may be earning rent from a property owned in India, or have a monthly pension or salary. Primarily, this takes the form of a rupee account, but you can receive your funds in the form of international currency and Indian rupees. Like an NRE account, this account can be started as a savings account, a recurring account, a fixed deposit, or a current account. However, for this account, tax of 30% is deducted at source from any interest earned. There is also an additional surcharge to be paid and an educational cess. Nonetheless, this is not a matter for you to worry over as you can avail of a refund which is based on the tax bracket of income you fall under. NRE and NRO account benefits are significant and you should be aware of these.
Advantages of NRE and NRO Accounts
Here is a brief round-up of the pros of having both accounts, and thus, of their importance:
- You can move money around freely.
- Interest on an NRE account is totally non-taxable, and although NRO account funds may be taxed, you get significant refunds.
- Both account funds can be managed in Indian rupees.
- You can conveniently authorise a resident Indian to manage both an NRO account and an NRE account.
- Your funds are managed better, in an overall way, keeping sources of funds segregated.
Funds and Investments
For non-resident Indians, both an NRE and NRO account hold vital importance. If you fall in either category, you may think of reinvesting your earnings in various Indian assets, like stocks or bonds, for instance. All you need to do is to find a reputed broker like Motilal Oswal to do this, and open a Demat account first. The Indian government encourages NRIs to invest in India as this is a win-win situation for all concerned.
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