Points to consider before opening.
-how to select,
-taxation,
-mode of holding,
-how to operate,
-& investment through NRE/ NRO account
Mode of operation
NRO account is opened to maintain funds generated form Indian income source, so if source of income is India open NRO account
-you can deposit in Indian as well as foreign currency & withdraw in Indian currency
-transfer of funds from NRO account to another NRO account can be done but funds cannot be transferred to NRE account
-no effect of rupee fluctuation at the time withdrawal as amount is in India currency
NRE account is opened if you want to convert foreign income to Indian currency & also helps you to repatriate it back to foreign country
-Example, your parents are staying in INDIA, and you are earning abroad, best way to transfer funds is open a NRE account and transfer the funds from your country of residence to your parents in INDIA
-you can deposit only in foreign currency as the purpose to open this account was to bring funds from abroad
-transfer of funds can be done to NRE or NRO account, as funds can be deposited in NRO account in foreign currency also.
Investment
While investing in India, NRIs have to indicate the method of investment. If the payment method is repatriable, you have to opt for an NRE account these deposits are fully repatriable. If the payment method is non-repatriable, you have to choose an NRO account. During redemption of the investments, if the investment is not tax-exempt, the tax is deducted at source.
Taxation
-interest earned on NRE account is tax free,
-interest earned on NRO account is taxable as per the tax slab
Repatriation
-maximum repatriation allowed in NRO account is 1 million USD, interest is freely repatriable, but principal amount has limits. You will also need a certificate from chartered accountant along with undertaking.
-in NRE account there is no such restriction, both interest and principal are freely repatriable
Mode of holding
-Joint NRE account can be opened only if both the holders are NRI
-In case of NRO account 2nd holder can be NRI or a resident Indian
Note1: NRI has an option to open an NRE account jointly with a resident Indian only in former or survivor mode of operation
Note2: What is "Former or Survivor mode": If the account is in the name of two individuals say, A & B, the final balance along with interest, if applicable, will be paid to the former i.e. A on date of maturity and to the survivor on death of anyone of the account holders.
Note3:
- [NRE Account] Non-Resident (External) Rupee Account
- [NRO Account] Non-Resident Ordinary Rupee Account
For more details, go to
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