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NRE, NRO Or FCNR–Which NRI Account Type Is Better For You?

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All Non-Resident Indians (NRIs) face a dilemma at the beginning of their NRI status – What kind of bank account should they maintain in India? Although there are several options available for NRIs considering opening a account in an Indian bank : Non-Resident Ordinary (NRO) Savings Account, NRO Fixed Deposit Account, Non-Resident External (NRE) Savings Account, NRE Fixed Deposit Account and Foreign Currency Non Resident (FCNR) Fixed Deposit Account. Each of these account types has certain advantages and disadvantages. Understanding them can help you in making a better choice.

NRE Account are best suitable for people who needs to make payments in INR or want to make investments in India from his/her overseas earnings and at the same time you want your Rupee savings to be freely Repatriable.

NRO Accounts are best suitable for people who wants to deposit his income in India from sources such as rent, dividends etc, and you want your investments in India to fetch higher returns.

FCNR Accounts are best suitable for people who wish to keep his overseas savings in India but do not want to convert them in INR.

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Q1 – What can be the source of the fund deposited in your NRI account? India Or Abroad?

NRE – The primary source of funds deposited into NRE accounts must be from your earnings abroad. In other words, you cannot deposit money from sources in India such as house rent or pensions in this account.

NRO – The source of funds deposited into NRO accounts can be from India or abroad. NRO accounts are suitable for NRIs who have had earnings in India earlier and became NRIs later as well as NRIs with income from sources in India such as house rent, pensions etc. You an also deposit money from your earnings abroad or transfer money from a NRE account into a NRO account.

FCNR – The source of funds deposited into FCNR accounts have to be from sources abroad. They can also be from your other NRE or FCNR accounts.

Conclusion : NRO accounts have the advantage of being able to deposit funds from both sources in India and abroad. NRE and FCNR can only have deposit funds from sources abroad.

Q2 – Which type of currency you can maintain in your NRI account?

NRE – NRE accounts are maintained in INR (rupees). This means that the foreign currency deposited by you will be converted to Indian rupees at the prevailing foreign exchange rates.

NRO – NRO accounts are maintained in INR (rupees). This means that the foreign currency deposited by you will be converted to Indian rupees at the prevailing foreign exchange rates.

FCNR – FCNR accounts have to be opened and maintained in the foreign currency itself. This means that the foreign currency deposited by you will be maintained as it is, no currency conversion required.

Conclusion : FCNR have advantage of not carrying the risk of currency rate as there is no conversion required. NRE and NRO account holders have to carry risk of the forex rates.

Q3 – Can you convert your NRI account funds to any other foreign currency anytime?

NRE – The principal and the interest amount are fully repatriable (can be converted to any foreign currency). The conversion back to foreign currency is done at the prevailing Forex rates.

NRO – Current Income like rent, dividend, pension can be remitted abroad through the NRO account. Funds which can be repatriated from the NRO are subject to a maximum limit of USD 1 million per financial year. Repatriability is subject to conditions.

FCNR – The principal amount and the interest are fully repatriable. As there is no conversion required funds can be remitted directly.

Q4 – Is there any risk associated in repatriating the currency from your NRI account?

NRE – As NRE accounts are maintained in rupees. It associates currency rate risks if you want to convert back into the foreign currency

NRO – As NRO accounts are maintained in rupees. It associates currency rate risks if you want to convert back into the foreign currency

FCNR – FCNR accounts are maintained in the foreign currency. So no currency rate risk associated with this account.

Conclusion : NRE & NRO account holders would like to repatriate their funds at some point. This can carry risks as well as rewards depending on the forex rates trend. FCNR accounts do not carry any forex rate risk as the accounts are always maintained in the foreign currency.

Q5 – Do you have to pay taxes on principal or interest amount of your NRI account?

NRE – Interest income earned on the money in a NRE account is non-taxable in India. However, it may be taxable in your country of residence as per that country’s tax rules.

NRO – Interest income earned on the money in a NRO account is liable for taxes in India.

FCNR – Interest income earned on the money in a FCNR account is non-taxable in India. However, it may be taxable in your country of residence as per that country’s tax rules.

Conclusion : NRE and FCNR accounts have the advantages of not having to pay taxes in India which could be a hassle for NRIs trying to figure out the tax rules in India as well as their country of residence.

Q6 – Can a family member in India operate your NRI account with a mandate card issued by the bank?

NRE – NRE Savings accounts allow you to have family members in India as mandate holders whereas you cannot have mandatees for the fixed deposit options available in NRE account.

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NRO – NRO Savings accounts allow you to have family members in India as mandate holders whereas you cannot have mandatees for the fixed deposit options available in NRO account.

FCNR – FCNR accounts do not allow to have mandate holder in India.

Conclusion : NRE Savings and NRO Savings accounts allow you to have family members in India as mandate holders whereas you cannot have mandatees for the fixed deposit options available in NRE, NRO and FCNR accounts. Mandate holders can withdraw funds from your accounts in India with some type of a card such as a debit card of a ATM card. They can also withdraw funds at the bank locations.

Q7 – Can NRI account holder have a joint account holder in India?

NRE – No, as you can only have other NRIs as joint account holders on NRE accounts. Resident Indians cannot be joint account holders in NRE accounts with NRIs.

NRO – Yes, as you can have other NRIs or resident Indians as joint account holders on NRO accounts.

FCNR – No, as you can only have other NRIs as joint account holders on FCNR accounts. Resident Indians cannot be joint account holders in FCNR accounts with NRIs.

Conclusion : NRO account holder have the advantage of having joint account holder in India. NRE and FCNR account holders can only have other NRI as joint account holder.

Q8 – What is the rate of interest on NRI accounts?

NRE – Returns on NRE saving & fixed accounts are at par with domestic accounts. This means interest paid on NRO accounts is as same as domestic accounts.

NRO – Returns on NRO saving accounts are at par with domestic accounts but NRO fixed deposit account offers substantially higher interest rate.

FCNR – Returns on FCNR accounts are at par with domestic accounts. This means interest paid on FCNR accounts is as same as domestic accounts.

Conclusion : The key advantage of NRO fixed deposit accounts is the substantially higher interest rates as compared to FCNR and NRE accounts.

Q9 – Is Inter-account transfer possible in NRI accounts?

NRE – Yes, you can make transfer from NRE to NRO account.

NRO – No, you can not make transfer from NRO to NRE account

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