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.

·         If he/she was physically present in India for a total period (including multiple short breaks) of 182 days or more for specific Financial year

·         If he/she was physically present in India for a total period (including multiple short breaks) of 365 days or more during the four years preceding the specific 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: