How does an NRE account work
Difference between NRE and NRO accounts
NRIs are allowed NGO account open to receive money from local transactions, with the exchange rate risk being borne by the depositor. On the other hand, it can NRE account opened by NRI, with funds transferred to India from a foreign bank. There are a few differences between NRE and NRO accounts that are described in this article.
|Basis of comparison||NRE account||NGO account|
|acronym||Foreign rupee account outside the country.||Ordinary rupee account for non-residents.|
|importance||A bank account into which NRI can deposit income from outside sources is known as an NRE account.||A bank account opened by NRI to open income mainly from an Indian source is known as an NGO account.|
|Shared account||Can be opened by two NRIs together.||Can be opened by NRI together with an Indian resident.|
|deposits and withdrawals||Foreign currency deposits and Indian rupee withdrawals.||Deposits in both foreign currency and Indian rupees and withdrawals in Indian rupees.|
|interest rate||Low||Comparatively high|
|Transfer||To NGO is possible||NRE is not allowed|
|return||Freely repatriable||The interest can be freely repatriated, but the client is not freely repatriable. There are a few exceptions, however.|
Definition of the NRE account
A non-resident external account, or NRE account, is a bank account held by NRIs to park their overseas earnings in India. The account holder can repurchase income from overseas and transfer them to India with full security and convenience. Banknotes or travelers checks are used to transfer foreign currencies. The account is denominated in INR.
The interest on the contributions made is tax-free. It offers full exchangeability of funds, i.e. principal plus interest. The account is managed in Indian currency only.
Definition of the NGO account
The Non-Resident Ordinary Account or NGO Account is a bank account that is used to manage the income generated in India such as rent, pensions, dividends, interest, etc. It is opened either by the Indian citizen while temporarily relocating overseas, or by an NRI by transferring money from their home country or other NGO account.
A regular bank account can also be renamed to an NRO account if the account holder's residential status is changed to NRI. The account is mainly used for parking funds from Indian sources in India. For financial reasons, the RBI only allows repatriation of funds up to $ 1,000,000 per fiscal year and from current income.
Main differences between NRE and NRO accounts
The main differences between the NRE and NRO accounts are explained in the following points:
- The NRE account stands for the Non-Resident External Rupee account, while the NRO account is an abbreviation for a non-resident normal rupee.
- The NRE account is a bank account into which the NRI can deposit income abroad. An account that is mainly used for NRI deposits in India is called an NRO account.
- The NRE account enables joint openings, where two NRIs can open an account together. Conversely, an Indian resident and an NRI can open an NGO account.
- An NRE account can only be deposited in foreign currency and subscriptions in Indian currency only. In contrast to the NGO account, deposits are allowed in Indian and foreign currencies, whereas withdrawals are only allowed in Indian rupees.
- The interest rate on the NRE account is lower than the NRO account.
- The interest on the NRE account is tax-free, in the case of the NRO account it is tax-free.
- A transfer from an NRE account to an NRO account is permitted, but the reverse is not possible.
- The principal and interest are freely repatriable on the NRE account. Interest on NGO accounts is freely repatriable, but the transfer of the main amount from India to another country is restricted. However, there are certain exceptions, i.e. all current income such as annuity, annuity, dividend income, etc. and transfers up to $ 1,000,000 in $ per fiscal year.
- The two accounts can be from any bank account, such as a savings account, a recurring account, a checking account, or a fixed deposit account.
- Both can be opened together or separately.
- Nominations are allowed on both accounts.
The two accounts are used by NRI to park their hard earned cash in India. While the NRE account is used to park money earned overseas to India or to keep the savings in Indian currency, the NRO account is used to park money earned from Indian sources in India . So if you are confused between these two points, you can make a selection based on your needs and the benefits associated with the two accounts.
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