Understanding NRI Bank Accounts

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Most individuals make a mistake of continuing a resident savings account even after becoming a NRI but the law does not allow it. Or in simple words it’s illegal to hold savings bank account for NRIs.

As per FEMA regulation, when a status changes to NRI the resident savings account have to be converted to a Non-Resident account.

Types of NRI bank accounts

An NRI can choose from two options : an NRE or an NRO account. It would be advantageous to know how these two types of accounts differ and which one is right for you.

What is an NRE account?

  • A Non-Resident External (NRE) account is a bank account that is opened by depositing ‘External’ (foreign) currency at the time of opening a bank account.
  • In an NRE account, you can keep your funds in rupee denomination.
  • With this account, the principal and interest earned are fully repatriated. Simply put, it will allow you to transfer funds from India to foreign country seamlessly.
  • Such accounts can be jointly held with NRIs.
  • You are allowed to make nominations as well.
  • The interest that you earn is exempt from tax, that is it’s tax- free.

What is an NRO account?

  • A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI.
  • You can keep your funds in rupee denomination here as well.
  • Unlike an NRE account, with an NRO account your repatriation is allowed only under specific conditions. As the RBI’s guidelines you are permitted to repatriate only up to $1 million per financial year (April to March) for purposes like education, medical expenses and current income.
  • As per the RBI, you can hold an NRO account jointly with residents or non-resident Indians.
  • You are allowed to make nominations on the account as well.
  • The interest you earn is taxable as per Indian income tax laws.

Which account should you choose?

Choose NRE account if you:

  • want to park your overseas earnings remitted to India
  • want to maintain savings in Rupee but keep them liquid
  • want to make a joint account with another NRI
  • want Rupee savings to be freely repatriable

Choose NRO account if you:

  • want to park India based earnings in Rupees in India
  • want account to deposit income earned  in India such as rent, dividends etc.
  • want to open joint account with resident Indian (close relative)

All income which is receivable in India such as rentals from property, investments, pension etc has to be deposited in NRO account.

Any payment towards insurance premiums or EMIs on loans which you availed while in India also has to be mandated from NRE/NRO account.

Any investment you make in India can be funded from NRE/NRO account.

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Both accounts can be opened as Savings as well as Current accounts and are Indian Rupee accounts.

– Aneesh V / NRICafe.com

17 Comments

  1. Anjan Bhattacharjee on

    Me & Wife just got our Green card. We are retired.We have no remittance back to india. We have F.Ds for
    10 years + savings a/c. Can we change over to NRE a/c F.Ds ? We have also another savings a/c with 3 in 1
    Stock portfolio. Pl advise the best alternative for change.

  2. Sadhu Singh Samra on

    Specified RBI Banks are very faraway from Punjab to deposit the money Rs 25000 by NRIS brought while coming to india.why the Govt has not specified RBI CHANDIGARH,which will very helpful to the NRIs of Punjab

  3. sir, I am working in Qatar from last 5 year, just I want to know what is the definition of NRI ? its only related with if we outside india more than 182 days means we consider as a NRI, but in my case I have income source here, but my family is staying with me, my wife is only house wife, no income source, so she also consider as a NRI. she also need to open NRE account in india ? she cannot keep normal saving account?

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