Importance and Benefits of NRE & NRO Accounts

For NRIs, having an NRE or NRO account is necessary to manage their earnings in India and partake in the Indian investment market. Read on to know about the importance and benefits of the NRE and NRO accounts. 

In India, the Reserve Bank of India regulates the opening and maintenance of bank accounts by the NRIs. The apex makes it mandatory for all non-resident Indians to open and maintain an NRI account to manage their earnings in India and overseas. Once you get the NRI status, it is illegal to hold a regular resident Indian citizen savings account, and it can attract a hefty penalty. 

As an NRI, you can open two types of savings bank accounts in India – NRO (Non-Resident Ordinary) and NRE (Non-Resident External) account. Let us know more about these accounts. 

NRE Account

Non-Resident External account is an ideal choice of bank account if you are employed overseas and draw a salary in foreign currency. This account enables you to deposit the foreign earnings in an Indian bank account and maintain the Indian currency deposit. The amount you deposit in the account is converted into INR as per the existing exchange rate at the time of deposit. 

You can open an NRE savings account with any financial institutions of your choice that are authorised by the RBI, be it a co-operative bank or a nationalised bank. Furthermore, you can open an NRE account as a savings account, current account, or term deposits like recurring deposits and fixed deposits.  

Importance and benefits of NRE Account

  • It allows you to easily park your foreign earnings in India and hold the money in INR
  • The deposits held in your NRE account is fully repatriable (both interest and the principal amount), which you can convert the funds into foreign currency
  • You can use the amount in your NRE account to make payments in India and abroad
  • You can make investments in the Indian investment schemes and pay the premium or investment amount through an NRE account
  • Another significant feature of an NRE account is that you can use the funds in your account as a security to avail of a loan in Indian Rupees and foreign currency to meet your immediate financial needs
  • NRE account holders can authorise a resident Indian to operate their account by providing a power of attorney.
  • The interest earned on the NRE deposits is tax-exempt in India

 NRO Account

A non-resident ordinary account is an ideal bank account for those NRIs who have an income source in India. It allows you to deposit and manage the funds in INR. You can maintain an NRO account as a savings account, current account, recurring deposit, or fixed deposit. The NRO account permits withdrawals in INR only. 

Importance and benefits of NRO Account

  • You can deposit the earnings originating in India through outstanding payments, interest from investments, business operations, rent from real estate properties, etc. 
  • If you have a business operation in India, the NRO account allows you to make payments to your vendors, employees, etc. You can also make payments towards your investment schemes.
  • The funds in your NRO account can be transferred to another NRO account. Transfer to NRE account is permitted only to a maximum limit of $ 1 million in a financial year.
  • If you have any outstanding payment on your international debit card issued by the bank in India, you can settle the payments through NRO account funds.
  • You can use NRO account funds to avail of loans for yourself or a third party. 

Thus, the NRE and NRO account serves several purposes for the NRIs. Make sure that you assess your banking needs well and choose the right type of account accordingly. 

 

 

 

 

 

 

Paul Petersen

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