Apr 062011
 

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There are many types of NRI banks accounts available. But, here I will be explaining only the most widely used and offered by the leading banks in India. The following are the three types of NRI bank accounts offered by most of the bank across India:

  • NRE (Non Resident (External) Rupee) Account:NRE is a term assigned to bank accounts available to NRI’s who currently reside outside India.
    • An NRE account can be a saving, current or a fixed term deposit account.
    • It is a Rupee dominated account which means funds in the NRE account are maintained in Indian Rupees. This means that the foreign currency is converted to Indian rupees at the prevailing foreign exchange rates when the money is deposited into the account.
    • 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.
    • Both Principal and Interest can be repatriated(can be converted to any foreign currency) / transferred out of India. The conversion back to foreign currency is done at the prevailing forex rates.
    • Principle as well as Interest income earned on the money in a NRE account is non-taxable in India. Also there is no wealth tax. This tax exemptions is available only for an NRE Account held by an individual and not for those maintained by OCBs (Overseas Company Bodies)
    • interest rates on NRE Savings deposits are the same as the rates applicable to domestic savings deposits.
    • 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.
    • You can not deposit Local rupee fund i.e Indian Currency in to this account.
    • A resident power of attorney holder can not open an NRE account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI.
    • Nomination is allowed for NRE accounts.

    NRE Vs NRO Bank Account

[ Image Credit : flickr ]

  • NRO (Non Resident Ordinary) Account : NRO is a term assigned to bank accounts available to NRI’s who currently reside outside India
    • An NRO account can be a saving, current or a fixed term deposit account.
    • Regular bank accounts of a person, who becomes an NRI, also get converted into NRO accounts.
    • It is a Rupee dominated account which means funds in the NRO account are maintained in Indian Rupees. This means that the foreign currency is converted to Indian rupees at the prevailing foreign exchange rates when the money is deposited into the account.
    • The source of funds deposited into NRO accounts can be from India or abroad. An NRO account can hold income earned in India (such as dividends, pension or rental income).
    • Funds can not be transferred from an NRO account to an NRE account.
    • An NRO account can be held jointly with another NRI or with a resident Indian.
    • Principle amount cannot be repatriated outside India in foreign exchange, without prior permission of the Reserve Bank of India. Only current earnings are repatriable.
    • The interest earned on deposits in an NRO account is taxable in the hands of the NRI as per the applicable income tax slab rates.
    • Interest rates on NRO Savings deposits are the same as the rates applicable to domestic savings deposits.
    • A resident power of attorney holder can not open an NRO account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI.
    • Nomination is allowed for NRO accounts.
  • FCNR (Foreign Currency Non Resident) Account : The term FCNR refers to fixed-term deposit accounts available to NRIs and PIOs. FCNR accounts have to be opened and maintained in the foreign currency itself. FCNR accounts can be opened in five different currencies viz., US dollar, Pound Sterling, Euro, Jap Yen, Canadian Dollar & Australian Dollar. 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. The principal amount and the interest are fully repatriable. Interest income earned on the money in a FCNR account is non-taxable in India. FCNR is free from currency risk as it keeps the money in same currency.

NRE Vs NRO Bank Account

Accounts NRE NRO
Full Form Non Resident (External) Rupee Non Resident Ordinary
Currency Indian Rupees Indian Rupees
Account Type Savings, Current or Fixed Deposit Savings, Current or Fixed Deposit
Who can open? NRI Only NRI Or Resident before becoming an NRI
Repatriation Allowed? Yes With prior permission of the Reserve Bank of India
source of funds Funds remitted from abroad, Funds from another NRE / FCNR account Funds received from within India and abroad
Fund transfer to another account Funds can be transferred from an NRE account to an NRO / NRE / Resident account Funds can be transferred from an NRO account to an NRO / Resident account
Joint account With NRI Yes Yes
Joint account with resident No Yes
Income Tax Tax free Taxed as per applicable slab rate
Can power of attorney holder open the account? No No
Can power of attorney holder operate the account? Yes, can make local rupee payments Yes, can make local rupee payments
Is nomination allowed? Yes Yes
Status of the account when NRI returns to India Converted to resident account Converted to resident account
ATM Card International Debit plus ATM card ATM Card
Best Suited For To park overseas savings remitted to India by converting to INR To park Indian earnings like rent, Indian salary, dividend, etc
Local Rupee Funds Can Not Deposit Can Deposit

If the NRI holding the NRE account returns to India and becomes a resident of India, the NRE and NRO accounts get converted into a regular resident account.

Note : Only those banks holding an Authorized Dealers’ license or banks specially authorized in this regard by the Reserve Bank of India (RBI) are permitted to open these accounts on behalf of NRIs.

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  One Response to “Difference Between NRE, NRO and FCNR Bank Accounts”

  1. Respected sir,
    I lked to know what is the difference, advantage and disadvantages of NRE, NRO and FCNR accounts.

    Awaiting your earliest response.

    Thanks & Best Regards
    Mathew

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