Understanding NRI Bank Accounts

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.
Both accounts can be opened as Savings as well as Current accounts and are Indian Rupee accounts.
– Aneesh V / NRICafe.com

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23 thoughts on “Understanding NRI Bank Accounts”

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  1. G.Ranganatha Rao

    I would like to convert mt savings account with State Bank of India into NRO account. What happens to my Fixed Deposits.Can it remain without any change in status?

  2. Pingback: Slide in oil prices : NRI remittances fall 87% in April | Energy Traders

  3. I am NRI since 1980 and has NRI account. Recently I wanted to add my wife as joint account holder as resident India. I was surprised to know the resident joint account holder is not authorised to operate the NRE account , as it used to be .If this is the case do not understand the provision of inserting the joint holder.

    1. your Wife could be as mandate holder to authorised and operate your account. open with ICICI then u will have 2 ATM card- 1st card for account holder and 2nd card for Mandate holder. your wife also can withdraw money with cheque book signed by herself.
      many benefit can be avail to mandate holder.

  4. Can i get Interest for NRE account, some of my friends are saying that i will not get any interest if i keep money on the NRE account and i need to transfer it NRO account inorder to earn Interest say 4% like wise, kindly clear

    1. Hi Sundar, The information you got is wrong. Both NRE and NRO accounts give interest similar to savings bank account (around 4% for most banks). The main difference is that you don’t have to pay tax on NRE account interest, while NRO account interest is taxable. At the same time you cannot deposit to NRE account from India, while NRO account deposits can be made from Indian and overseas.
      To get more interest you can open an NRE Fixed Deposit account (interest is around 7-8% for most banks), but your money will be locked for a period of at least 1 year.
      The account that does not give any interest is Current Account, which is mainly opened by business people residing in India.

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