At the beginning of the NRI Status, most of the people are in dilemma about what kind of Bank account should they hold in India? Should it be an NRO account or should it be an NRE account or a FCNR account? Each of these accounts has their own pros and cons. Understanding them in detail will help you in making better choice.
Non Resident External Account (NRE)
An NRE account is a Rupee denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account.
Advantages of NRE Accounts
- The interest earned on deposits in an NRE account is exempt from tax in the hands of the NRI
- Funds can be repatriated from an NRE account. This means that the funds can be freely sent to any other country
- An NRE account can contain funds remitted from abroad, or obtained from another NRE / FCNR account maintained in India
- Funds can be transferred from an NRE account to an NRO account without any restriction.
- An NRE account can be held jointly, provided the other person is also an NRI
- Nomination is allowed for NRE accounts
Disadvantages of NRE Accounts
- Interest earned on Deposits in an NRE account is very less comparatively to NRO account.
- Balances in the NRE accounts are held in Indian Rupees and thus exposed to Exchange Fluctuation risk.
NRE Account are best suitable for people who needs to make payments in INR or want to make investments in India from his/her overseas earnings and at the same time you want your Rupee savings to be freely Repatriable.
Non Resident Ordinary Accounts (NRO)
NRO accounts are also rupee denominated account. This means that the foreign currency is converted to Indian rupees at the prevailing foreign exchange rates when the money is deposited into the account.
Advantages of NRO Accounts
- Interest earned on Deposits in NRO account is very high comparatively to NRE account.
- An NRO account can be held jointly with another NRI or with a resident Indian.
- Nomination is allowed for NRO accounts.
Disadvantages of NRO Accounts
- Funds cannot be repatriated from an NRO account. These funds have to be used only for local (within India) payments in Indian Rupees.
- An NRO account can only contain funds received from within India
- Funds cannot be transferred from an NRO account to an NRE account
- The interest earned on deposits in an NRO account is taxable in the hands of the NRI as per the applicable income tax slab rates.
NRO Accounts are best suitable for people who want to deposit his income in India from sources such as rent, dividends etc., and you want your investments in India to fetch higher returns.
Foreign Currency Non Resident Account (FCNR)
FCNR accounts are denominated in foreign currency. The source of funds deposited into FCNR accounts have to be from sources abroad. They can also be from your other NRE or FCNR accounts.
Advantages of FCNR Accounts
- The principal amount and the interest are fully repatriable.
- Interest income earned on the money in a FCNR account is non-taxable in India. However, it may be taxable in your country of residence as per that country’s tax rules.
- You can have other NRIs as joint account holders on FCNR accounts.
- FCNR accounts do not carry any forex rate risk as the accounts are always maintained in the foreign currency.
Disadvantages of FCNR Accounts
- Interest Rate on deposits in FCNR accounts are less comparatively to NRO accounts.
- Resident Indians cannot be joint account holders in FCNR accounts with NRIs.
- Savings account option is not available for FCNR accounts.
FCNR Accounts are best suitable for people who wish to keep his overseas savings in India but do not want to convert them in INR.
Priya Rao, InvestmentYogi