The FEMA guidelines of RBI restrict NRIs to manage their earnings through a regular bank account. As a result, NRIs need to convert the existing bank account into an NRE or NRO account or open a new NRI account.
Depending on the banking needs of the NRIs, they can choose to open an NRE account or NRO account, or both. For instance, some NRIs need a bank account to park and manage their foreign income while some require an account to manage income originating in India.
How to Decide Whether You Should Open an NRE or NRO Account?
So, based on your banking needs, you can select a suitable account. Both of these accounts are used for different things. Here are some pointers to help you choose the best account for you:
Consider opening an NRE account, if:
- You want to park your foreign earnings in India.
- Funds in an NRE account are converted and managed in Indian rupees.
- You intend to invest in Indian markets that can be repatriated.
- You'd want to set up a joint account with another non-resident Indian or a close Indian relative.
- Funds in this NRI account are fully and freely repatriable without any additional charges.
- A major highlight of this account is that the interest earned from deposits is exempt from tax in India.
Consider opening an NRO account, if:
- You require a bank account to manage your earnings originating in India.
- You want to retain your Indian income in Indian Rupees and don't intend to use them in your own country.
- You want to set up a joint account with a native Indian. If you want your Indian profits to be quickly available to your family back home, this option is really helpful.
- You want to invest in Indian markets.
- NRO accounts offer better interest rates, but the interest earned on deposits is subject to a tax of 30 per cent plus applicable cess and surcharge. However, you can avail yourself of reduced tax benefits under the DTAA facility.
Is It Possible for an NRI to Have Both an NRE and an NRO Account?
Yes, an NRI is allowed to open both NRE and NRO accounts. If you earn money in India, you can deposit it in an NRO account, and if you want to manage your foreign earnings in India, you can open an NRE account. Even if the accounts belong to the same person, the restrictions on financial transfers between NRE and NRO accounts apply.
At last, NRE and NRO accounts have unique characteristics to meet the different banking needs of NRIs. However, the final decision depends on your banking needs.