Difference between NRE and NRO Accounts

Difference between NRE and NRO Accounts

The Government of India has permitted NRIs to open rupee accounts in India in order to repatriate funds from their home countries. The two most common accounts are the NRE and NRO accounts. Let’s take a closer look at them.

What’s an NRE account?

A Non-Resident External (NRE) account is a bank account that’s opened by depositing foreign currency at the time of opening a bank account. This currency can be tendered in the form of traveler’s checks or notes.

What’s an NRO account?

A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account. It offers the same facilities as an NRE account, except that any repatriation done through this account should be reported to RBI by filling up prescribed forms.

How do NRE and NRO accounts differ?

Funds remitted from overseas sources or local funds that would otherwise have been sent to the accountholder abroad can instead be transferred to NRE Accounts. On the other hand, local funds that aren’t eligible to be remitted abroad must be credited to an NRO account.

Can you transfer funds from an NRE to anNROaccount and vice versa?

It’s easy to transfer funds fromanNREto an NRO account. But it’s not possible to transfer funds from an NRO account to an NRE account. Once you transfer funds fromanNREtoanNRO account, the amount is non-repatriable. Consequently, you cannot transfer it back.

What’s the difference in the tax treatment for interest earned on an NRE and an NRO account?

The interest earned on any type of NRO bank as well as the credit balances in this kind of account are taxed under the account holder’s tax bracket. On the other hand, interest earned on the NRE account is totally exempted from income tax, and the credit balances in the account don’t attract any wealth tax. Any gift given to a close relative doesn’t attract gift tax.

Source: window2india.com &  investmentkit.com