Opportunities for NRIs to open accounts:-The government gives non-resident Indians (NRI) the opportunity to open rupee-dominated accounts in India for repatriating funds. The most popular among these are the NRE and NRO accounts.
Simply put, an NRE (non-resident external) accounts gives an individual the opportunity to deposit money earned from abroad.
It can be either in the form of a savings or current or term deposit account. Apart from the account holder, a resident can also operate the NRE account for making local payments as long as he has the power of attorney.
Privilege of NRO account: – Meanwhile, an NRO (non-resident ordinary) account gives one the privilege of depositing overseas earnings as well as Indian earnings. An NRO account can be in the form of saving, current and term deposit account.
However, one can have a resident of India as a joint account holder. Income arising in foreign currency, remittances received through proper banking channel or from NRE account and any past dues from India can be deposited in this account.
But money once deposited in this account can only be withdrawn for local payments including investments.
How do you open an NRE or NRO account?
The process is similar for both accounts. To open an NRO or NRE account, one has to make a request with an authorised bank.
One is then is required to submit documents like utility bill, driving licence, resident permit, rent received, passport and overseas or Indian bank statement.
Also, the minimum fund has to be remitted to India either as forex remittance and transfer from existing NRE account.
Comparison with Differences between NRE and NRO accounts
| Non-Resident External (NRE) Account | Non-Resident Ordinary (NRO) Account | |
| Currency | Rupee denominated | Rupee denominated |
| Regulation | Foreign Exchange Management (Deposit) Regulations 2000 | Foreign Exchange Management (Deposit) Regulations 2000 |
| Type | Savings, Current, recurring or a {Fixed / Term Deposit with min. 1 year or maximum 3 yr period) | Savings, Current or a Fixed / Term Deposit |
| Foreign National | Can not open | Can open such account but with funds remitted from outside income |
| Who can open? | NRI | NRI, Resident before becoming an NRI |
| Whether RBI Approval required | Only in the case of individual & entities of Bangladesh/Pakistan nationality. | Only in the case of individual & entities of Bangladesh/Pakistan nationality. |
| Is repatriation allowed? | Yes | Current Income is freely repatriable with a CA certificate that taxes have been paid on such incomes but principal amount is restricted to USD 1 million per financial year except citizen of certain countries. |
| Repatriation to Nominee NRI | Permitted in case of death of the account holder | Permitted in case of death of the account holder |
| What can be the source of funds? | Funds remitted from abroad, Funds from another NRE / FCNR account | Funds received from within India |
| Can funds be transferred to another account? | Funds can be transferred from an NRE account to an NRO / NRE / Resident account | Funds can be transferred from an NRO account to an NRO / Resident account |
| Can it be opened jointly with an NRI? | Yes | Yes as well with Residnet |
| Whether addition or deletion of name permitted | Yes | Yes |
| Can it be opened jointly with a resident? | No | Yes |
| What is the income tax treatment of the interest earned? | Tax free | Taxable u/s 115C and TDS @ 20% would be applicable. |
| Can power of attorney holder open the account? | No | No |
| Can power of attorney holder operate the account? | Yes, can make local rupee payments but can not gift on behalf of NR or transfer funds to another NRE account. | Yes, can make local rupee payments but can not gift on behalf of NR or transfer funds to another NRO account. |
| Is nomination allowed? | Yes for Individuals | Yes for individuals |
| What is the status of the account when NRI returns to India for good? | Converted to resident account | Converted to resident account |
| Disadvantage | If rupee depreciates, the saving in terms of USD depreciates. | If rupee depreciates, the saving in terms of USD depreciates. |
| Loan against security of NRE Account | Permitted subject to certain limitations.upto 100 lacs | Permitted as per normal terms and conditions of resident account holders |
I want to know more about the taxability of interest earned on N R O deposit. How is it calculated ?.
I would like to know if is it against the RBI guidelines or it is allowed if an NRI gives friendly loan (interest free loan) from his NRE account to a resident account.
I opened an NRO FD through NRE online banking account. I want to reptriate it back to NRE account. The bank does not allow that stating some rules. I however see in the above table that NRO reptriation is permitted. Can you please explain how this repatriation be done?
This is very informative and want to know more about the taxability of the interst earned on such deposits/ Investments.