People of Indian origin whether they live in India or abroad must follow certain rules in order to invest in the Indian capital market. But the rules and procedures for Non-Resident Indian are quite different compared to those living in India. For instance, if a person becomes NRI, it becomes quite illegal for him to hold the resident bank account. Any existing bank accounts should be converted into the non- resident bank account. This is mainly due to the FEMA (Foreign exchange Management Act) guidelines, which makes it illegal for NRI’s to have a savings account in their name in India. NRI needs to maintain a special account in order to send the money they earned, or they can retain the income from India in the home country itself. There are basically two types of account for NRI, as per the RBI guidelines:
- NRO (Non-resident ordinary open Account):
NRO is basically a savings or the current account held in India for NRIs to manage income earned in India. It is the best way to deposit and manage their funds.
- NRE (Non– resident Rupee Account):
NRE is basically an Indian rupee denominated account. It can be either in the form of savings, current, recurring or fixed deposits. NRI can deposit only foreign currency in this account, which gets converted into the Indian rupees at the time of deposit.
Both accounts can be opened as saving account as well as current account. They need to maintain and manage an average monthly balance of Rs 75,000. Now,
Let’s look at the basic difference between NRO and NRE account:
- Repatriation :
NRE account has freely repatriability, which basically means principal and interest earned will not be charged, while the NRO account has restricted repartriability. In the case of NRO, one cannot remit more than one million-dollar USD dollar including taxes from your NRO account in a financial year.
- The Implication of Tax:
NRE account is basically tax–free in India, which basically means there will be no tax whether its gift, wealth or income. But on the other hand, income and credit balance under the NRO is subjected to Indian Income tax.
- Deposit of Rupee Fee Generated in India:
If any NRI/PIO and OCI are earning income generated from India, then they must deposit the income in NRO account.
- Joint Account Holding:
An NRI can make an NRE joint account with another NRI but not with Indian resident. But in the case of NRO, one can open a joint account both with NRI or resident of India. More so, an NRI can deposit their income generating from outside India in either of the accounts but income originating within India can be deposited only into the NRO account. The withdrawals from both the accounts can be made only in INR.
If an NRI total income including income earned in India and you want to manage within the country, then they can opt for the NRO account. They can open the NRE account, if they want to transfer the income to India and want to avoid tax liabilities.
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