Your full guide to NRI accounts: NRO and NRE accounts| North Loop Official Blog
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15 Feb 2020

Your full guide to NRI accounts: NRO and NRE accounts

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Overview of NRE and NRO Accounts

Are you an Indian living abroad? Over 35 million Indians living abroad who are designated as NRIs (Non-Resident Indians). The Indian government classifies NRIs as Indians who spend more than 240 days a year abroad. Previously, this was 181 days but it was amended in the 2020 Budget.
The RBI (Reserve Bank of India) has created two types of bank accounts - NRE and NRO - to help Indians abroad with sending and depositing money. These accounts are especially critical if you want to park earnings from India (or abroad). You can use these accounts to support families in India, make investments, manage properties, and more.
The Foreign Exchange and Management Act (FEMA) made it illegal for NRIs to have a savings account in India in their name. Therefore, all NRIs must convert their local Indian savings accounts into NRE/NRO account or else face heavy penalties. The three core benefits of having these accounts are: 1) sending earnings from abroad to India anytime 2) depositing earnings from India 3) earning tax-free interest income via NRE accounts.

What is an NRE account?

A Non-Resident Earnings (NRE) Account is an Indian account for NRIs to hold foreign funds. These accounts can be found in various forms - savings, current, fixed deposits etc. NRE accounts are Indian-rupee denominated accounts i.e. the foreign currency you deposit in them is converted into Indian rupees.
Use this account to deposit foreign earnings from your country of residence (e.g. USA), which can then be used to pay for Indian expenses such as rent, utilities, etc.
NRE accounts also offer fixed deposits with tax-free interest earnings - enabling NRIs to earn a comfortable source of income without tax liabilities. You can use NRE accounts to invest in mutual funds and can repatriate that income tax-free. Any funds deposited into NRE accounts can be remitted to foreign accounts very quickly and easily, tax-free.
You will also receive an international debit card that can be use anywhere 24/7.

Get a zero-balance, no-fee NRE/NRO account with North Loop in 5 minutes

What is an NRO account?

A Non-Resident Ordinary (NRO) Account is a bank account for Indians abroad. It can be in the form of savings, current, recurring, or fixed-deposit. You can deposit foreign currency into this account, which will be automatically converted into Indian rupees. NRO accounts are a good way to deposit earnings from India e.g. if you have tenants paying you rent, ask them to send it to your NRO account.
NRO accounts are taxable as per Indian law. Therefore, NRIs use NRO accounts to deposit their Indian earnings, as well as foreign deposits. NRO accounts are usually recommended if you are not planning on repatriating the income/funds that are being deposited into that account.
NRO accounts can be jointly held by two NRIs or with one resident Indian as well.

Difference between NRE and NRO account

Both NRE and NRO accounts sound extremely similar on the surface. The main difference between NRE and NRO accounts is around their usage and taxation and repatriating the funds out of India. NRE accounts can only be opened with foreign currency, while NRO accounts can be opened using either Indian rupees or foreign currencies.
All funds that are repatriated from an NRE account are tax-free, whereas funds repatriated from an NRO account are taxable.
NRO Accounts are used when you don’t want to repatriate funds out of India - they are ideal for those who want to keep those specific funds within India. Since they can be held with a resident Indian, a good use case is for an NRI to use it to support a family member in India.
NRE vs NRONon-Resident Ordinary (NRO)Non-Resident External (NRE)
Open withIndian or foreign currencyForeign currency
Currency held inINRINR
Joint account of two or more NRIsYesYes
Joint account with an Indian residentYesNo
Repatriability of FundsRepatriable, after taxes and has certain conditionsFreely repatriable, tax-free
Interest RatesDetermined by bankDetermined by bank

NRE vs NRO account: Taxation and Transfers-

RE account taxation- In the case of an NRE account, both the principal and interest are completely tax-free.

NRO account taxation- In the case of an NRO account, both the principal and interest are taxable at a rate of 30% plus a surcharge and cess as per the income tax act.

NRE to NRO transfers- Most major Indian banks facilitate NRE to NRO transfers as well as NRE to NRE money transfers.

NRO to NRE transfers- NRIs can transfer funds from NRO to NRE account up to USD 1 million in a calendar year as per the RBI. Interest on Non Resident Ordinary accounts are taxed at applicable rates. You can transfer funds to an NRE account only after all taxes have been paid.

Transfer Money from NRO to Foreign Bank Account- You can transfer money from NRO to Foreign Bank Account by transferring money to an NRE account first. You can then repatriate this amount in foreign currencies in a foreign bank account.

Can I open an NRO/ NRE account?

You can open an NRO/NRE account before you leave India, or while you are abroad. To qualify as an NRI, you must spend 240 days outside of India every year.

People eligible to open a Non-Resident External (NRE) Account in India –

  • NRIs or PIOs (Person of Indian Origin) as per FEMA’s (Foreign Exchange Management Act) definition. (However, a joint account with Resident Indian (RI) who is a close relative can also be opened. You will be the primary/first account holder of such a joint NRE account, and the Resident Indian will be the second applicant).
  • Seafarers of Indian nationality/origin
  • Indian government employees with Diplomatic passports, or
  • Students pursuing studies in foreign countries

People eligible to open Non-Resident Ordinary (NRO) Account-

  • NRIs residing in India for the purpose of employment, business, education or vocation.

  • Individuals who are posted in the United Nations or are working under the Government of India abroad.

  • Indian nationals working as mariners or in oil rigs or foreign registered airlines.

  • Individuals that hold a foreign passport who have held an Indian passport previously are eligible to open an NRO account.

  • NRIs whose parents or grandparents are a citizen of India are also eligible for the same.

Following are the documents that are broadly required if you wish to open an NRE account in India -

  • Application form duly filled and signed by you
  • Proof of your NRI status, by way of valid Employment/ Residence Visa copy or Work/Residence Permit
  • Proof of Address of Foreign Residence like a copy of the statement of the bank account maintained abroad, a certificate from your employer abroad, utility bills, photocopy of passport with your foreign address, photocopy of your driving license or any other relevant document as a proof of address to your foreign residence. The address on the document submitted has to match the address mentioned in the application form
  • Copy of your latest valid passport
  • Copy of Indian PAN card or Form 60
  • Recent passport size colored photographs
  • Photocopy of Visa
  • Copies of all of the above attested by the Embassy of India or any other overseas banker
  • Initial remittance by way of a DD issued or cheque drawn on a foreign bank in your resident country equivalent to the amount required to maintain the Average Monthly Balance in your account (in case of a Draft, a DD slip is mandatory)

Following are the documents that are broadly required if you wish to open an NRO account in India-

  • A valid passport copy.

  • A valid proof of NRI status- Employment or residence visa copy, work or residence permit.

  • Proof of Indian and overseas residence.

  • Pan Card copy.

  • Recent passport size photographs.

Opening an NRE and NRO account

Opening an NRE and NRO account is fairly cumbersome with most legacy Indian banks (North Loop makes it into a quick, 5 min process).

Depositing money in NRO account or NRE account

NRIs depositing money in NRO account or NRE account can do so in the following ways:
  • Direct remit/transfer from your foreign bank account
  • Depositing physical foreign currency at your bank in India when or if you come to visit
  • Transferring funds from an existing NRE account in another bank in India
  • Other funds via bank transfer/cheque deposit from other individuals

The investment and monthly balance maintenance amount varies by bank - check what your bank requires online under their NRI services. North Loop offers free remittance to India, as well as zero-balance NRI accounts.

Penalty for NRI having resident account and not converting the same to an NRO account-

If you are leaving India and will become an NRI, make sure to inform your bank (or open an NRI account with North Loop).
If you don’t do this, and continue to use your Indian savings account as an NRI, the penalty for NRI having a resident account is up to 3x the sum involved, or up to 2 lakhs if the amount is not directly quantifiable. If the situation continues without resolution, the penalty can be compounded up to 300% of the amount in question. To avoid these penalties, we suggest converting your accounts at your local bank as soon as possible or opening an account with North Loop.

Converting NRE to Resident Account-

You would be required to file a declaration of redesignation of NRO/NRE/ Foreign Currency Non-Resident Account and submit the same to your bank. This declaration contains details such as account number, customer ID, etc. Once you submit the declaration, your NRO/NRE/oreign Currency Non-Resident Account gets redesignated to a resident account.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.