There are three different categories of NRI accounts: Non-Resident External (NRE) Account, Non-Resident Ordinary (NRO) Account, and Foreign Currency Non-Resident (FCNR) Account. These three accounts have some differences, but the main thing is NRE vs NRO, which will be discussed further. An NRI account is a banking account opened by citizens who do not currently live in India in any Indian or Indian associate bank. Any Indian citizen may open a bank account with a banking service approved by the Reserve Bank of India (RBI).
However, this process is not as streamlined for those who have preserved their Indian citizenship but live outside of the nation, i.e., Non-Residential Indians (NRI), and there are several protocols and types of accounts that NRIs can open, including a Demat Account.
These accounts differ for several reasons, such as the fact that as an NRI, you live overseas and earn and trade in foreign currencies depending on where you currently reside, as well as that your banking and investment needs differ.
Only citizens residing outside India’s physical border for 120 days or longer are eligible for NRI accounts. Additionally, they must have lived outside India for no more than four years in the previous ten years. Open Demat accounts are free for NRIs.
Types of NRI Accounts:
A Non-Resident External Account’s primary function is to enable Non-Resident Indians to deposit any money that comes from their home country but can be kept in Indian rupees. Numerous options are available with this type of account, including opening the account as savings, current, or for fixed and periodic contributions.
Another advantage is that no tax is levied on any interest income on funds held in these accounts. They can be opened with a relative who is an Indian citizen and resident and permit the repatriation of funds.
An NRO account, like an NRE account, enables the account holder to keep any amount in Indian rupees. It differs from an NRE account because it only permits the storage of revenue generated within India. In other words, they will not be eligible for this account if they make any money in their nation.
To store this money, you would need to create an NRE account. However, recent advances have, in some circumstances, made it possible to keep revenue received from a foreign country in this account, depending on the bank and other factors.
NRO accounts are similar to NRE accounts in that they can be opened as savings, current, or fixed deposit accounts. You need a minimum amount of INR 10000 or its equivalent in foreign currency to open NRO account in India.
This type of account differs from the previous two—NRE and NRO versions—in that it enables Non-Resident Indians (NRIs) or persons of Indian origin (POI) to deposit any income they make overseas and hold them in the currency of their place of residency.
Any money placed is tax-exempt and can be kept in that state as long as the account holder keeps their NRI status is an additional advantage of this sort of account for NRIs.
The differences between NRE and NRO accounts.
- An NRO account is a bank account opened in India in the name of an NRI to manage the money he earns there, as opposed to an NRE account, which is a bank account opened in India in the name of an NRI to park his overseas profits. These earnings include rent, dividends, pensions, interest, etc.
- Taxes are not due on NRE accounts. Neither the balance nor the interest is subject to taxation on these accounts. However, the Income Tax Act of 1961 states that the interest received on an NRO account is subject to a 30% tax.
- The principal balance and interest accrued on an NRE account are both eligible for repatriation. In the event of an NRE account, you can transfer these funds to a foreign account. You can repatriate the interest amount from an NRO account, but you can only send the principal amount up to USD 1 million in a fiscal year.
- An NRI and one or more other NRIs or Indian citizens may open a joint NRO account. A collective NRE account, however, can only be opened with another NRI.
Non-resident Indians may desire to keep their money in Indian bank accounts because they still have family members who live in India or because they still have various investments there.
Due to the rising demand for these services from NRIs, the banking sector has developed several account types tailored to their needs and requirements. This enables NRIs to keep a robust financial connection to their home country while living abroad. You can get detailed mutual fund advisory from experts at SBNRI. You can download SBNRI App from the Google Play Store or App Store to ask any questions related to mutual fund investment, NRI account opening online and tax filing in India.
NRIs are also eligible for many other economic advantages, such as the ability to create a free Demat account, in addition to these banking services.