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Are you an NRI (Non-Resident Indian) who earns income both abroad and in India and often finds it challenging to manage finances, especially when you have multiple bank accounts across different countries? Tracking funds or transferring money to your home country can be complicated. To help with these issues, banks offer various types of accounts specifically designed for NRIs.
If you’re an NRI looking to open a bank account in India, this article will guide you through the different types of accounts and their features.
A ‘Non-resident Indian’ (NRI) is an Indian citizen who lives outside India for work, business, studies, or any other purpose and stays abroad most of the year.
As per Indian income tax rules:
Non-Resident Indians (“NRI”) are often faced with the situation of maintaining an Indian rupee account. Primarily, there are two reasons for opening such an account:
Additionally, a non-resident Indian (NRI) is not permitted to have a savings account in India in their name, under the guidelines set forth by the Foreign Exchange Management Act (FEMA). Consequently, NRIs are required to transfer all foreign savings into a Non-Resident Ordinary (NRO) or Non-Resident External (NRE) account. As a result, the account holder may face severe penalties for utilizing a savings account in their own country. Therefore, NRIS can open an NRE or NRO account.
The following are the benefits of opening an NRI account in India:
A non-resident Indian (“NRI”) can open different accounts in India to manage their income earned outside India and income earned in India. The various types of accounts that NRIs can open are NRE, NRO, and FCNR accounts. Let’s understand these three-
An NRE (Non-Resident External) Account is a bank account in India that NRIs can open to deposit their foreign income (money earned outside India).
These accounts can be in the form of savings, current, RD, or FD.
Purpose: It is primarily used for business, personal banking, and investment purposes in India. The principal amount and interest accumulated thereon in an NRE account are open for repatriation.
Currency: All funds deposited are maintained in the Indian rupee, i.e., these are INR-based accounts. When you put foreign currency into this account, the receiving bank applies the current exchange rate, and Indian rupees equal to the exchange rate are placed in your account.
Joint Account: An NRE account can be opened independently or cooperatively. However, a joint account can be unlocked only with one more NRI.
Tax Benefits: Money is tax-free and repatriable.
Key Features:
An NRO account is an Indian savings or current account held by a Non-Resident Indian (NRI) to manage their income earned in India.
Purpose: It is used to deposit Indian payments from dividends, pensions, rentals, or other income into an NRO account. An NRO account facilitates money transfer abroad.
Currency: The Non-Resident Ordinary Rupee account allows you to receive funds in either Indian or foreign currency.
Joint Account: This account can be opened by an NRI along with a resident citizen (a close relative) or another NRI. It is even viable to transfer funds from your current Non-Residential External (NRE) account.
Taxability: The interest you earn in this account is subject to Tax Deducted at Source (TDS) as per the provisions of the Income Tax Act, 1961.
Key Features:
| Basis | NRE Account | NRO Account |
| Phrase | Non-Resident External Account | Non-Resident Ordinary Account |
| Meaning | It is an account of an NRI to transfer foreign earnings/income to India | It is an account of an NRI to oversee the income earned in India. |
| Taxability | Interest earned is tax-free in India. | Interest earned and credit balance are subject to the respective Income tax bracket, applicable wealth, and gift tax. However, account holders can avail themselves of the tax benefit of the provisions of DTAA. |
| Repatriation | Can repatriate for both the principal and the interest amount. | The interest amount can be freely repatriated, but the principal amount can be repatriated within the set limits along with a certificate from a Chartered Accountant. |
| Joint account | Under this, a joint account can be only opened by two NRIs. | Under this, a joint account can be open along with an Indian citizen (a close relative) or an anotheer NRI as well.
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Both Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts are Indian rupee accounts. Both of these accounts can be open up in the form of savings and current account.
| Parameter | NRE accounts | NRO accounts |
| Deposits and withdrawals | Funds can be deposited in foreign currency but withdrawn in Indian currency.
All withdrawals from an NRE account are in Indian Rupees (INR). This is because the account itself is denominated in INR. The account holder uses this INR for local expenses or investments in India. |
As it is designed to manage income earned in India therefore funds can be deposited in foreign as well as Indian currency, but withdrawn in Indian currency.
You can deposit income earned in India (like rent, dividends, or salary) in INR. You can also transfer money from your foreign bank account to the NRO account, in which case the foreign currency is converted to INR.
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| Transfer of funds | Funds can be transferred to another NRE account as well as to an NRO account. | Funds can transfer from an NRO to another NRO account, but the account holder cannot transfer funds from an NRO account to an NRE account. |
| Effect of exchange rate variations | NRE accounts are subject to conversion loss of currency and rate variation in the rupee value against a foreign currency. | There are no risks associated with NRO accounts related to rate fluctuations. |
If your total income includes income earned in India and you want to direct it, you can select an NRO account. An NRE account can be opened if you wish to remit your foreign income to India and avoid taxation liabilities.
An FCNR account is an account used to deposit foreign currency earned overseas in a term deposit. It allows an NRI to deposit their money in the desired currency. Also, the deposits made should be the earnings from the NRI’s country of residence. One can also shift funds from an NRE account to an FCNR account while opening. The interest rate on FCNR accounts varies with the currency and tenure. Also, NRO accounts can be utilized for investing in India—for example, in mutual funds, shares, etc.
Key Features:
For NRIs, choosing the correct bank account depends on the source of income—foreign or Indian. If you want to repatriate overseas earnings easily, an NRE account is the best choice. If you need to manage your India-based earnings, go for an NRO account. And if you want to hold deposits in foreign currency without worrying about exchange rates, an FCNR account is ideal. Opening the right account will not only simplify financial management but also provide tax efficiency and peace of mind. I hope all things are now clear in your mind, and if you want to know about specific documents required in India, you can check on this blog for a better understanding- https://masllp.com/how-foreign-nationals-can-open-a-bank-account-in-india-a-complete-guide/
At Mercurius, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory, and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about NRE & NRO accounts, kindly contact us.
