Most individuals make the mistake of continuing a resident savings account even after becoming an NRI but the law does not allow it. Or in simple words, it’s illegal to hold a savings bank account for NRIs.
As per FEMA regulation, when a status changes to NRI the resident savings account have to be converted to a Non-Resident account.
This article explains the common NRI Account Types and their differences. You can also figure out which type of NRI account is ideal for you.
Most Common NRI Account Types
An NRI can choose from two options: an NRE or an NRO account. It would be advantageous to know how these two types of accounts differ and which one is right for you.
What Is An NRE Account?
A Non-Resident External (NRE) account is a bank account that is opened by depositing ‘External’ (foreign) currency at the time of opening a bank account.
In an NRE account, you can keep your funds in a rupee denomination.
With this account, the principal and interest earned are fully repatriated. Simply put, it will allow you to transfer funds from India to a foreign country seamlessly.
- Such accounts can be jointly held with NRIs
- You are allowed to make nominations as well
- The interest that you earn is exempt from tax, that is it’s tax-free
What Is 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.
You can keep your funds in the rupee denomination here as well.
Unlike an NRE account, with an NRO account, your repatriation is allowed only under specific conditions. As per the RBI’s guidelines, you are permitted to repatriate only up to $1 million per financial year (April to March) for purposes like education, medical expenses and current income.
- As per the RBI, you can hold an NRO account jointly with residents or non-resident Indians.
- You are allowed to make nominations on the account as well.
- The interest you earn is taxable as per Indian income tax laws.
Differences Between NRE And NRO Accounts
| Non Resident External (NRE) | Non Resident Ordinary (NRO) |
|---|---|
| Remittance from external sources only | Remittance from external + local sources |
| The deposit is fully repatriable | Limitations on repatriation |
| Interest is tax-free | Interest is taxable |
| The account can be jointly held with NRIs only | The account can be jointly held with NRIs + Residents |
| Funds can be transferred to NRE or NRO | Funds cannot be transferred to NRE |
Which Account Should You Choose?
Choose NRE Account If You:
- want to deposit your foreign earnings in Rupees
- want to save tax on your interests
- want your deposits to be freely repatriable
- want to make a joint account with another NRI
Choose NRO Account If You:
- want to deposit your earnings from Indian sources
- have sources of income like rent, dividend, pension etc. in India
- want to open joint account with a resident Indian
All income that is receivable in India such as rentals from property, investments, pension etc has to be deposited in the NRO account.
Any payment towards insurance premiums or EMIs on loans that you availed while in India also can be mandated from NRE/NRO account.
Any investment you make in India can be funded from NRE/NRO account.
Both accounts can be opened as Savings as well as Current accounts and are Indian Rupee accounts.
The ideal choice would be to open an NRE account for your foreign remittance and open another NRO account if you have income from India. This way you can maintain the advantage of the tax-free interest and limitless repatriation with the NRE account as well as do not have to worry about depositing from India with an NRO account.
FCNR Account
In addition to the above types of NRI accounts, there is another type of account called FCNR Account.
Foreign Currency Non-Resident Account (FCNR) is a kind of fixed deposit account opened for depositing income earned overseas. This account is held in a foreign currency such as USD, GBP, JPY, CAD, AUD, SGD, and HKD.
This type of account usually earns less interest than an NRE account. However, the deposits will be less exposed to the depreciation of Indian Rupees. If your chosen foreign currency appreciates against the Rupee you have the advantage in the long run.
FCNR deposits can be opened for tenures of 1 year up to 5 years.
- Funds held in FCNR accounts are freely repatriable.
- These accounts are generally exempt from TDS in India.
- Most banks provide overdraft against FCNR deposits. The overdraft amount will be disbursed in Indian Rupees and the funds can be utilized in India only.
Interest is not paid if the deposit is prematurely withdrawn before completion of 1 year.
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Reference: Reserve Bank of India
Good infromation in very clear language. Thanks.
Dear Sir,
I am an Indian, migrated to Canada and now holding the Canadian citizenship. I have NRI accounts in India and using it for transactions.
May i know that is it legal to hold and deposit money in India/Indian bank while i am a Canadian Citizen?
Dear sir
i am working in Dubai. i have opened a NRE Account this month. i already have bank account in UAE. What is the limitation of Fund transfer to UAE Account to NRE Account ?>
i have a question. I have NRE account. I want to add my wife’s name in NRE account as resident. Is it possible?
I am a new NRi aged 79 years. I have no income in US. I had opened a FD when I was a Resident in ICICI Bank and the bank has given me the Senior Citizen benefit. This FD is to mature in Dec 2017. To comply with law, I had converted my account to NRO. This change was made in Aug 2017-just four months before maturity of FD. Now ICICI Bank says that the senior Citizen benefit is not applicable retrospectively from Dec 2014 & had deducted. what ever additional paid till June 2017 (for 2 yrs & 6 months out of 3 yrs)). Is there any guidelines by RBI that the additional benefit for Senior Citizen will not be payable if the FD is changed from Resident to NRO in the intervening period of currency of thye FD? If some learned friends can advice, I would be grateful. ICICI Bank is not telling whether there is any approved rules or is it only discretionary?
I have both NRE and local saving accounts. Local account is being used for rental deposits and local transactions.
Is it acceptable having two different accounts?? Pls advise.
thank you.
NRI CAN MAINTAIN RESIDENT SAVING ACCOUNT WITH ANY NATINALISED BANK IN INDIA TO PAY THE HOUSE RENT/ MAINTAINACE BILL FOPR ELECTRICITY, TELPHONES , ETC,OTHER THENTHE NRE & NRO ACCOUNT AND WHAT MINIMUM BALANCE IS ALLIGIBLE .
sir, I am working in Qatar from last 5 year, just I want to know what is the definition of NRI ? its only related with if we outside india more than 182 days means we consider as a NRI, but in my case I have income source here, but my family is staying with me, my wife is only house wife, no income source, so she also consider as a NRI. she also need to open NRE account in india ? she cannot keep normal saving account?
Specified RBI Banks are very faraway from Punjab to deposit the money Rs 25000 by NRIS brought while coming to india.why the Govt has not specified RBI CHANDIGARH,which will very helpful to the NRIs of Punjab