Understanding the Difference Between NRE and NRO Accounts
To make an informed decision about which account to choose, here’s a look at the differences between the two types of bank accounts available for NRIs.
If you send money from the UAE to India, an NRE account will help you park these foreign earnings in the account in Indian Rupees (INR). On the other hand, an NRO account will help you keep the India-based investment earnings in INR.
You should choose an NRE account if you want to maintain your foreign-sourced income in Indian Rupees, and also if you want to keep the savings liquid. But, an NRO account is useful if you want to save income earned in India like that from rent, sale of property, dividend pay-outs, and more in the Indian currency.
Interest earned on an NRE account is tax-free, while interest earned in an NRO account is taxable. The latter is subject to Tax Deducted at Source (TDS). The interest earned on the NRO account is taxable at the rate of 30% under the Indian Income Tax Act of 1961.
In an NRE account, both the principal amount and the interest earned are freely repatriable. So, when you send money from the UAE to India to an NRE account, you can freely transfer the interest earnings plus the principal amount back to your UAE-based account. On the contrary, funds from the NRO account can be repatriated up to a maximum of US$ 1 million in a financial year, after the payment of applicable taxes.
Deposits and Withdrawal
In an NRE account, you can deposit in a foreign currency and withdraw in Indian Rupees. An NRO account lets you deposit both in foreign as well as the Indian currency, and lets you withdraw in Indian Rupees.
Thus, there is an exchange rate risk involved in an NRE account, while the risk is lower for an NRO account.
Joint Account Holding
You can open an NRE account jointly with only another NRI. But, NRO accounts can be held with NRIs, as well as family members residing in India.
Transfer of Funds Between Accounts
With an NRE account, you can send funds to other NRE accounts as well as to an NRO account. On the other hand, you can send funds from an NRO account only to another NRO account, not to an NRE account.
Both these accounts can be easily opened as both savings or current accounts. It is mandatory to maintain a minimum balance of ₹75,000 in each type of account.
So, if you have an income base in India and want to grow it in the country, an NRO account could be a good choice. However, if you want to send money from the UAE to India, park it in the country without tax liabilities, an NRE account is the way to go.