If you see the NR alphabets followed by some other alphabet, that usually means a non-residential Indian has something to do with that. Also, we see the abbreviations, NRI, NRE, NRO, etc., all of which are NRI account with various functions and features. Such accounts were developed to simplify things for those NRIs who want to make savings or investments in India.
What is an NRO account?
NRO stands for Non-Resident Ordinary Rupee is current, or savings account for NRIs held in India to manage the money earned in India. NRO accounts help them collect money by allowing them to deposit it to the account of the NRO. The currency deposited into the NRO account is converted to INR automatically.
Opening an NRO account can be done jointly with an Indian citizen, in which case each of you will get a debit card for the same account. The NRO account interest rates gained on the assets of that account is subject to TDS.
What is an NRE account?
NRE is a Non-Resident Rupee account filled with security features because it has an Indian Rupee denomination. In this account, the assets the exist in the form of fixed deposit, loan, revolving deposit, or current. Also, foreign currency may get deposited into the NRE account, which gets converted to INR at the time of deposit. Repatriation is permanently permitted. Additionally, there is no tax on this account's interest earnings.
There are also no taxes on the movement of money from the country of residence to India. One of the greatest benefits of the NRE account is that if you connect your NRE account to the investment account, it eases mutual fund investments.
As per FEMA rules, it is considered illegal for a non-resident Indian to have a savings account in his / her name. Therefore, if an NRI wishes to hold a savings account in India, then they must open NRO accounts to repatriate the money earned in the resident country. If you fail to do so, it could to lead to heavy penalties and fines for the NRI.
It is a multi-benefit process that enables NRIs to keep both a savings account in their home country India and own properties.
Difference between NRE and NRO account
- NRE account allows free repatriation in a given financial year, without any upper limit. The law extends for the interest as well as the principal sum. The maximum repatriation limit for NRO accounts is USD 1 million, which also includes taxes. You will also need a Certification from a Chartered Accountant if you want to repatriate money from your NRO account.
- When you are an NRI or PIO or OCI, and you continue to raise funds in India in the form of dividends, rent, salaries, etc., this balance can only be deposited in the NRO account. NRE accounts in India do not entertain revenues generated.