What do you mean by NRE account?
Non-resident Indian Account is that account where an NRI can remit the foreign currency through transfer/ swift/TCs/ cash mostly before they visit India. After remitting foreign currency in India, the bank converts the currency into equivalent rupees as per the applicable exchange rate. The converted currency may be used later by the NRI for spending in India.
What do you mean by NRO account?
Non-resident ordinary Account is that account where an NRI can deposit and withdraw amount in Indian Rupees. So if an NRI having some income in the form of rent, dividend or in any other form in India on a regular basis, the same can be deposited in his/her NRO account.
Difference between NRO and NRE accounts
The basic differences between these two accounts are as follows:
- NRI is a non- taxable account this means that any interest earned on the money deposited in NRI or bank deposits made from such NRI accounts are not taxable in India, whereas the interest income earned from money depositing under NRO accounts are taxable in India at the rate 30% plus surcharge, cess, etc.
- In case of NRO account, one can deposit as well as withdraw Indian currency from account with the motive of helping you to manage your income from Indian assets, whereas in case of NRE account one can only withdraw the Indian currency from NRI account (you can deposit only with the condition that there is a certificate 15CA/CB from the Chartered Accountant, that’s mandatory as per the Indian Income Tax Department or money exchanger specifically stating that Indian Rupees you want to deposit in your NRI account is from the conversion of Foreign Currency and after all the applicable taxes in India have been paid).
- One can completely extradite the idle money lying in the NRI account to abroad without any supporting documents.
Also in case of NRO account, one can completely extradite the idle money lying in the NRO account to abroad but you need to submit the 15CA/CB certificate from a CA to the bank to remit these funds out of India.
NRO account V/s NRE account
|Acronym||Non Resident Ordinary Account||Non Resident External Account|
|Meaning||It is an account of an NRI to manage the income earned in India||It is an account of an NRI to transfer foreign earnings to India|
|Taxability||Income earned in NRO account is not taxable in India||Income earned in NRO account is taxable in India at the rate of 30%|
|Deposits and Withdrawals||Can deposit in foreign as well as Indian currency, and withdraw in Indian currency||Can deposit in foreign currency, and withdraw in Indian currency|
|Joint Account||Can be opened by an NRI along with an Indian citizen or another NRI||Can be opened by two NRIs|
|Exchange Rate Risk||Not prone to risk||Prone to risk|
Why is it important to have a NRE/NRO account for an NRI?
It is mandatory for a person if one wishes to keep the money in a bank in the native country earning outside of it. Just like if residents have domestic deposits, the non- residents person have NRE/NRO both the accounts. The motive behind this is just to facilitate tracking of forex reserves of the country by the Central Bank of the country at any given point of time.