In this article we discuss about the concept of (Non-Resident External) NRE and (Non-Resident Ordinary Rupees) NRO accounts.These accounts are important for Non-Resident Indian (NRI) to manage their earning which is earn in India and abroad. NRI can freely repatriate money to their home account.
What is the difference between NRE & NRO accounts:-
|S. No.||Particular||NRE (Non-Resident External Rupees)||NRO (Non-Resident Ordinary Rupees)|
|1.||Full Form||NRE stand for Non-Resident External Rupees Account||NRO stand for Non-Resident Ordinary Rupees Account|
|2.||Meaning||In NRE account NRI transfer the foreign earning into India||In NRO account NRI deposit the amount which is earned into India like salary, dividend, rent etc.|
|3.||Tax treatment||Principal & Interest earned is tax free||Interest is taxable|
|4.||Repatriate||NRE account is freely repatriable||NRO account also repatriable but after some restriction like Limit of permitted remittance is USD 1 million net of applicable taxes in a financial year.|
|5.||Limit||No Limit||USD 1 million in a financial year|
|6.||Undertaking||No undertaking required||Undertaking required|
|7.||Certification||No certificate required||CA certificate required|
|8.||Joint Account||NRE account can be jointly handled with another NRI. NRE account cannot be jointly handled with resident Indian. So, both of the partly must be NRI.||NRO account can be handled with another NRI as well as resident Indian.|
Point to be Noted:-
- In NRO account interest is taxable @ 30% plus surcharge and other applicable taxes in India provided under Income Tax Act, 1961. An NRI can take the benefit of lower tax rate as per DTAA (Double Taxation Avoidance Agreement) by showing Tax Residency Certificate. The Tax Residency certificate issued by Tax Authorities of the country of his residence.
- NRE account is tax free account in India. So, in this type of account no income tax, gift tax, wealth tax etc. will be liable.
- Any income which is earned in India cannot be deposited in NRE account.
- NRE and NRO account are similar in some cases like both the account are rupees denominated accounts. These both account can be open current as well as saving account.
- In NRO account no exchange rate risk exists if both deposit as well as withdrawal made in Indian rupees.
- In NRE account exchange rate risk exists because of currency fluctuations.