Difference between NRE & NRO Accounts for NRIs (Non-Resident Indians)
Determining an NRI status from Indian taxation point of view:
Below mentioned are the two different definitions to determine your tax status:
Definition 1- Section 6 of the Income Tax Act 1961 (ITA) provides detailed guidelines to assess the residential status of an individual
Here we provide a brief summary of it. For detailed information, please refer to “Section 6 of the income tax Act,1961”. If you fulfill any of the below mentioned conditions, then you qualify as Residence in Indian status and you are liable to file an ITR in India for particular Financial year.
Definition 2- As per Foreign Exchange Management Act,1999 (FEMA)
he/she is considered as an NRI, If he/she resides outside of India for the purpose of employment or any other situations in which time of stay outside of India is uncertain.
Why an NRI needs to open NRE/NRO Account?
If you hold NRI status as per The Indian Tax Act, 1961 (ITA) and/or Foreign Exchange Management Act (FEMA), it is illegal to have savings bank account in India. In case you already have savings bank account in India, then you can convert them to NRE/NRO account. To manage finances back in India While staying abroad, two preferable and advisable options are available- NRE Account and/or NRO Account.
Comparison between NRE Account & NRO Account:
|Description||NRO Account||NRE Account|
|Full Form||Non-Resident Ordinary Account||Non-Resident External Account|
|Purpose of opening||NRI use this account to manage Income earned in India||NRI use this account to transfer his/her foreign income to India|
|Taxation||Earning of interest is taxable at 30% (plus other applicable taxes)||Earning of interest is tax free|
|Joint Account Option||One must be NRI & other account holder can be NRI or Indian citizen||Only two NRIs can become joint account holders. However an authorized family member can access the account in the absense of primary account holder|
|Repatriable||Yes (Limited to USD $1M) with some charges||Yes, without any charges|
|Deposits & withdrawals|
|How can I transfer fund in Indian banks|