• Difference between NRE and NRO FDs

    Published on September 21 2019

    Many Non-Resident Indians (NRIs) hold either NRO or NRE accounts, which is a popular term deposit options that allows them to earn a good rate of return and park funds in India. NRE, or Non-Resident External accounts and NRO or Non-Resident Ordinary account, are special account options that are only available to NRIs. They come with a number of benefits including tax exemptions, full repatriability, etc. In this article, we will explore the difference between an NRE and an NRO account.

    Difference between NRE and NRO FDs

    What is an NRE account?

    An NRE FD is a type of term deposit account where the NRI makes deposits from overseas and remit the same in an Indian account, where the currency will be converted into rupees. An NRE deposit is basically a term deposit account held to transfer foreign earnings.

    What is an NRO account?

    An NRO account is usually opened by an NRI in order to manage the income that is earned in India. This income can be in the form of rent, pension or other types of dividends. The interest earned from these deposits are taxable.

    Difference between an NRE and an NRO account:

    NRE NRO
    Taxable Taxfree
    Fully repatriable (principal and interest) Restricted repatriability
    Cannot be opened jointly with Indian resident Can be opened jointly with an Indian resident
    Cannot deposit income earned in India Can deposit income earned in India

    Taxation

    NRO fixed deposits attract taxes as per Indian laws. The interests earned from an NRO FD are taxed according to the Income Tax Act, 1961 at around 30%, which is quite high when compared to domestic FD rates.

    NRE fixed deposits do not attract taxes on the principal or interests earned from the deposits. Consequently, NRE fixed deposits are completely tax free. This difference makes an NRE FD a better option than its NRO avatar.

    Repatriation

    NRO FDs do not offer repatriation option on the principal investment. Only the interest earned from your NRO FD can be transferred to a foreign account.

    NRE fixed deposits offer the option for full repatriation of funds including both principal and accrued interests to a foreign account. These accounts therefore simplify the process of transferring principal and earned interests from an Indian account to a great deal.

    Joint accounts

    Any two NRIs can opt for either a NRO or an NRE joint account without any complications. However, an NRI can only open an NRO account jointly with an Indian resident citizen.

    NRE fixed deposits cannot be opened jointly with a resident Indian citizen, even if that person is a direct family member.

    Deposit and withdrawal

    Only funds originating in India can be used to open an NRO account, and consequently an NRO fixed deposit. You cannot transfer funds from abroad to start a fixed deposit from your NRO. However, funds from an NRE account can be transferred into an NRO account for the purpose of opening a fixed deposit.

    NRE accounts are opened by remitting foreign currency earned from abroad directly into the fixed deposit account. NRE fixed deposits are restricted from being opened by transferring currency from an NRO account or a resident savings account.

    Withdrawals from both these accounts can be done only in Indian Rupees.

    Interest rates

    The rate of interest in NRO and NRE accounts may vary according to the bank you are applying in. As such, it is imperative that you check the available rates to find the option with the highest returns for you. Typically, an NRE or NRO FD is offered with maturity between 1-20 years.

    Overall, the choice between an NRE and an NRO fixed deposit boils down to your preferences according to the benefits that you can avail out of the two types of accounts. A point to remember here is that NRE accounts are used to park foreign earnings in Indian accounts and in INR, while an NRO account is used to park funds earned from India.

    Should you choose NRE or NRO account?

    Go for an NRE FD is you want to mainly park funds from foreign countries and want the currency to be fully repatriable.

    On the other hand, it is best to go for an NRO deposit if you want to park your Indian earnings.

    Frequently Asked Questions

    1. Will I be required to pay any fees if I wish to open an NRE or an NRO account?

      No, you will not be required to pay any fees in order to open an NRE or an NRO account.

    2. Can I open more than one NRE account in my name?

      You can open only one NRE account in your name with a bank. If you have bank accounts with other banks, then you can open an NRE account with them.

    3. Will senior citizens earn additional interest on opening an NRE or an NRO account?

      Whether senior citizens will receive additional interest will vary from bank to bank. However, there is a possibility that senior citizens may not receive additional interest on their deposits in NRE or an NRO account.

    4. Are NRE and NRO accounts taxable?

      While NRE accounts are not taxable, the NRO accounts are taxable at 30%.

    5. NRE or NRO? Which of the two is riskier?

      NRE accounts are riskier as the exchange rate may rise or fall depending on the foreign exchange rates which fluctuate from time to time.

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