According to the guidelines issued by the Foreign Exchange Management Act (FEMA), the NRI cannot hold a savings account in their name in India. They have to convert the savings (money that is earned abroad) to the Non-Resident External Account (NRE) or to the Non-Resident Ordinary (NRO) account. There is also a third type of account- FCNR which is a fixed deposit for NRIs. Therefore, opening an NRO or NRE account is the most effective solution for non-resident Indians. It is beneficial for NRIs (Non-Resident Indians) in two ways- firstly, they are able to send their earnings in foreign currency to India and secondly, they can retain income from India in the country of origin itself. In this article, we take a look at the key difference between NRE vs NRO vs FCNR accounts.
What is an NRE Account?
A Non-Resident External (NRE) Account as the name suggests is an Indian rupee-denominated account that offers complete security. The accounts are usually in the category of current, savings, fixed or recurring deposits. The foreign currency deposited into the account is converted into INR. One can transfer funds (Principal and Interest amount) from an NRE account to a foreign account without restrictions and complications.
The amount deposited into these accounts needs to be earned outside of India. The international debit card lets you transact and withdraw money around the day and throughout the week. Mutual fund investments become instant and effortless when the NRE account number is linked to the investment account. NRE account is used for conducting business, personal banking and making investments in India.
What is an NRO Account?
An NRO (Non-Resident Ordinary Rupee) Account is a current or savings account held by NRIs in India in order to manage the income that is earned here. The account holders deposit and manage accumulated rupee funds without hassle. The account lets one receive funds in either Foreign or Indian currency. One can jointly apply for an NRO account with an NRI or a resident Indian. One can even transfer money from the current NRE account but the interest earned in this account is subject to Tax Deducted at Source.
What is an FCNR Account?
A Foreign Currency Non-Resident (FCNR) is a bank account to maintain a fixed deposit account in India for NRIs. The account allows the NRI to save the money earned in the currency form of the country originally earned the money.
FCNRs are akin to FDs for resident Indians, the only difference being that this is in the foreign currency. FCNRs are ideal investment options for NRIs to invest in India. FCNR deposits can be made in currencies such as Pound Sterling, US Dollars, Japanese Yes, Euro, Canadian Dollars and Australian Dollars. When the money is held in these currencies, the risk of exchange rate fluctuations becomes eliminated. The interest on such deposits becomes exempt from income tax. The return is high and risk-free and is a good place to start an investment.
The deposit accounts are not savings but term deposit accounts. The money can be withdrawn prior to the maturity date and there are no charges. However, the interest is not to be paid until after one-year completion. It is simple to open an NRE account that an NRI is maintaining in India. The amount earned, the principal and the interest in addition to the loan facilities such as overdrafts are repatriable. This term refers to the ability to be able to move liquid financial assets to the investor’s origin country from a foreign country.
Difference Between NRE, NRO and FCNR Accounts
Below is provided with a tabular comparison of NRE NRO and FCNR accounts that you can explore in order to choose an account that suits you best. These accounts are simple, effective ways to manage income from different sources and enable one to move money between India and the resident country.
|Parameters||NRE Account||NRO Account||FCNR Account|
|Who can open?||PIOs/NRIs/OCIs (entities/individuals of Pakistan/Bangladesh nationality/ownership requires prior approval of RBI)||Resident outside India (other than the resident person in Bhutan and Nepal). (Entities/individuals of Pakistan/Bangladesh nationality/ownership as well as erstwhile OCBs that need prior RBI approval)||PIOs/NRIs/OCIs (entities. individuals of Pakistan/ Bangladesh ownership/nationality required prior to RBI approval)|
|Deposit||Foreign currency||Indian currency||GBP, USD, SGD, AUD, CHF, CAD, JPY, UR|
|Taxation in India||Not taxable in India||Interest income is taxable,||Not taxable in India|
|Withdrawals||Indian rupee||Indian rupee||Foreign currency|
|Repatriability||Deposits and interest earned are fully repatriable||Upto 1 million USD per financial year||The deposits and interest earned on them are fully repatriable|
|Joint Account||Can be jointly held with NRIs||Can be held jointly with NRIs||Can be held jointly with NRIs|
|Exchange Rate Risk||Foreign exchange risk due to market fluctuations||Zero foreign exchange risk||No risk with foreign exchange|
|Account Types||Current account, savings account, term deposits and recurring deposits||Current account, savings account, term deposits and recurring deposits||Term deposits|
|Loan Against FD||Can be availed in Indian rupees||Can be availed in Indian rupees||Can be availed in foreign currency along with conditions|
The article has covered the three major types of accounts for NRIs-NRO, NRE and FCNR. For an NRI looking to open a bank account in India, you have at your disposal several options. Read the article and the section detailing the comparison of nre nro and fcnr accounts and select the best one for your needs.