NRE vs NRO Account: Compare Purpose, Tax, Repatriation & Bajaj Finserv Advantage

NRE and NRO accounts are specialised bank accounts designed to cater to the unique financial needs of NRIs. While both serve distinct purposes, they are fundamentally different in terms of functionality, tax treatment, and repatriation rules.

What is an NRE account?

An NRE account allows NRIs to park their foreign income in India. It is a rupee-denominated account, which means funds deposited in foreign currency are converted into Indian rupees.

Key Features of NRE Accounts:

• Purpose: Ideal for managing income earned outside India.
• Tax Benefits: Interest earned is tax-free in India.
• Repatriation: Funds are fully and freely repatriable, making it easy to transfer money back to your country of residence.
• Currency Risk: Since funds are maintained in Indian rupees, the account is subject to forex fluctuations.

What is an NRO account?

An NRO account is designed for NRIs to manage income earned in India, such as rental income, dividends, or pension. This account is also rupee-denominated.

Key Features of NRO Accounts:

• Purpose: Suitable for managing income generated within India.
• Tax Treatment: Interest earned is subject to tax in India, as per applicable rates.
• Repatriation: Repatriation is allowed but limited to USD 1 million per financial year, subject to documentation and compliance with RBI guidelines.
• Currency Risk: Like NRE accounts, NRO accounts are also subject to forex fluctuations.

Pro Tip: If you primarily deal with foreign income and want tax-free interest, an NRE account is more suitable. However, if you need to manage Indian earnings, an NRO account is the better choice.

One of the most important factors to consider when choosing between NRE and NRO accounts is the ease of repatriation, i.e., transferring funds abroad.

Repatriation in NRE Accounts

• Funds in an NRE account are fully repatriable, meaning you can transfer both principal and interest earned to your country of residence without restrictions.
• No additional documentation is required for repatriation, making it a hassle-free process.

Repatriation in NRO Accounts

• Repatriation from an NRO account is subject to a limit of USD 1 million per financial year.
• To repatriate funds, you must provide supporting documents such as Form 15CA and Form 15CB, certified by a Chartered Accountant.

Example Use Case: If you are an NRI earning rental income in India, you can deposit it into an NRO account and later transfer a portion of it abroad, subject to the repatriation limit.

Pro Tip: For NRIs with frequent repatriation needs, an NRE account offers greater flexibility and fewer restrictions.

Currency fluctuations and deposit sources play a crucial role in determining the suitability of NRE and NRO accounts.

Forex Impact on NRE and NRO Accounts

Both NRE and NRO accounts are rupee-denominated, which means they are exposed to exchange rate fluctuations. However, the impact varies based on the source of funds:

• NRE Account: Since deposits are made in foreign currency, the account is vulnerable to exchange rate risks when converting to rupees.
• NRO Account: Deposits are typically made in Indian rupees, so forex impact is minimal unless funds are repatriated abroad.

Deposit Sources in NRE vs NRO Accounts

• NRE Account: Only foreign income can be deposited, such as salary earned abroad or income from overseas investments.
• NRO Account: Both foreign and Indian income can be deposited, including rental income, dividends, or proceeds from the sale of property in India.

Pro Tip: Choose an NRE account if your income is predominantly foreign. Opt for an NRO account if you need to manage Indian earnings or a mix of both.

Conclusion

Choosing between an NRE and NRO account depends on your financial goals, income sources, and repatriation needs. If you are looking to manage foreign income with tax-free interest and unrestricted fund transfers, an NRE account is the right choice. On the other hand, if you need to handle Indian earnings and do not mind the repatriation limits, an NRO account is more suitable.

At Bajaj Finserv, we understand the unique financial needs of NRIs and offer tailored solutions to simplify your banking experience. Explore Bajaj Finserv NRI services and open your NRI account with ease today.

Get started now and make informed financial decisions with Bajaj Finserv!