What is a NRI and NRO account

After coming to Calgary, I needed some information on NRI and NRO accounts. Lots of people kept telling lotsa things. ultimately it was the old trusted Economic Times, Mumbai that gave some easy to understand and good information

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.

A NRE (Non-Resident External) account 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.

A 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. The following income can be deposited in this account.

• Income arising in foreign currency
• Remittances received through proper banking channel or from NRE account
• 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But money once deposited in this account can only be withdrawn for local payments including investments.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. Following documents are needed:

• Utility bill
• Driving licence
• Resident permit
• Rent received
• Passport
• 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.

What’s the difference between NRE and NRO account?

• While, a NRE account is for depositing income from abroad, NRO account is mainly for putting Indian incomes.
• In a NRE account only NRIs can become joint account holders but the NRO account both resident and nonresident can become joint account holders.
• Funds from NRE account can be transferred to NRO account but the reverse is not possible.
• One can freely repatriate the principal amount from the NRE account but not from the NRO account. The principal amount lying in the NRO account can be used only for local payments. The interest earned on the principal is repatriable in both the cases. In a year, funds up to $1 million can be repatriated from NRO account.
• The interest earned on NRO account is taxable in India but it is tax free in case of NRE accounts.

What are the advantages and disadvantages of NRE account?
Interest on deposits in a NRE account is tax free in India. The balance lying on the account does not attract wealth tax. Any gifts given from the money lying in this account does not attract gift tax.
The primary disadvantage associated with an NRE account is that it suffers from currency risk and attracts lower rate of interest in comparison to NRO account.