An NRI (Non-Resident Indian) who earns money both in India and abroad typically has trouble managing his or her finances. They also have trouble tracking bank accounts in other countries, as well as trying to repatriate money to their home account. This is where NRE and NRO accounts come in handy.

It is prohibited for NRIs to have savings accounts in India, according to the Foreign Exchange Management Act (FEMA) requirements. All of your savings (money earned abroad) must be converted to a Non-Resident External (NRE)/Non-Resident Ordinary Rupee (NRO). As a result, continuing to use the savings account in the home nation may result in severe consequences. To streamline your tax planning, you can consider having an NRI tax advisor in India

For Non-Resident Indians, opening an NRE or NRO account is thus a realistic choice. It can be beneficial to NRIs in two ways. For starters, people can send money earned outside to India at any moment. Two, they can keep their income from India (in the form of any assets) in their native country.

Differences between the two types of accounts are listed below:

  • Repatriability: The funds in an NRE account, as well as the interest earned, are entirely reimbursable. Repatriation of funds from NRO accounts is restricted. 
  • Rules for Deposit: NRE and NRO accounts have distinct deposit rules. In both the NRE and NRO accounts, you can deposit any amount in a foreign currency. But Only funds denominated in Indian rupees can be put in the NRO account.
  • Taxation: The taxability of funds is a significant distinction between NRE and NRO. The interest earned on NRE account deposits is tax-free. An NRO account’s earnings are taxed. NRIs, on the other hand, can lower their tax burden in India by taking advantage of tax concessions under the Double Taxation Avoidance Agreement with several nations.
  • Transfer of Funds: You can transfer money from one NRE account to another, as well as from one NRO account to another NRO account. Also it is possible to transfer funds from NRE to NRO account. However to transfer funds from an NRO account to an NRE account  certification of form nos. 15CA and 15CB by a Chartered Accountant is required.
  • Opening Up Joint Account: For both NRE and NRO accounts, the rules for opening a joint account are varied. A joint NRE account with a resident Indian is not possible. For NRE accounts, the joint account holder must be an NRI. There are no limits on an NRO account. An NRO account can be opened with a resident Indian as a joint account holder.
  • Currency Fluctuations: An NRE account’s deposits are subject to both exchange rate swings and conversion loss. Deposits in NRO accounts are not affected by daily currency movements.

If you have a source of income in India, an NRO account is the way to go, as an NRE account would not suffice. However, if you only wish to convert a portion of your overseas earnings into Indian rupee savings, the NRE account is the best option. The interest earned on deposits in the NRE account is tax-free, and there are no restrictions on repatriation. To make things work for you, you can get a tax consultant for NRI in India.

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