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Published on Friday, June 21, 2019 by Chittorgarh.com Team | Modified on Thursday, May 13, 2021
Non-Resident External (NRE) bank account is for NRIs to transfer foreign earnings to India. Non-Resident Ordinary (NRO) bank account is for NRIs to manage the income earned in India (i.e. rent, dividend, pension, sale of property purchased before becoming an NRI).
In NRE Bank Account, both the principal and interest amount is freely repatriable. In the case of NRO Bank Account, the principal can be repatriable (up to $1M in a financial year) after certain paperwork with RBI.
To invest or trade in the Indian Stock Market, an NRI need NRE and/or NRO bank accounts. In brief:
Below is a detail NRE & NRO account comparison. Find out the difference between an NRE & NRO account.
| Non-Resident External (NRE) | Non-Resident Ordinary (NRO) | |
|---|---|---|
Purpose |
For NRIs to transfer foreign earnings to India. |
For NRIs to manage the income earned in India i.e. rent, dividend, pension, sale of property purchased prior to becoming an NRI etc. |
Who can open this account? |
Any NRI (including PIO, OCI cardholder) can open an NRE account. |
Any person resident outside India can open an NRO account. A Power of Attorney is usually given to a close relative in India to allow them to operate the account. |
Joint Account? |
NRE accounts can be opened by one or two NRIs as joint holders. |
NRO accounts can be opened by an NRI along with an Indian resident or another NRI. |
Source of Fund |
Income earned in foreign countries can be deposited in this account. |
Income earned in foreign as well as in India can be deposited in this account. |
Deposits |
Can deposit in foreign currency. |
Can deposit in foreign as well as Indian currency. |
Withdrawals |
Money can be withdrawn from an NRE account in India as well as abroad. This is called repatriation. |
Money can be withdrawn from an NRO account in India as well as abroad but only Indian currency. This is called non-repatriation basis. |
Taxability |
NRE accounts are exempt from tax. Interest earning is tax-free in India. |
Earning is taxable at the rate of 30%. Interest, dividents and capital gains are taxable in India. |
Repatriation of Fund |
Both the principal and interest amount is freely repatriable. |
The principal amount can be repatriable after submitting Form 15 CA and Form 15 CB to ensure that taxes are collected on the funds before they are remitted abroad. You can remit only up to $1 million in a financial year. 100% of the interest earn is repatriable on which TDS has already deducted. |
Exchange Rate fluctuations Risk |
Yes |
No risk if deposit, as well as the withdrawal, is made in Indian Rupee. |
Exposure |
The account is exposed to the fluctuations in the value of the Indian Rupees for both the principal and interest. |
The account holder is exposed to the fluctuations in the value of the Indian Rupee only for the interest component. |
Who should open? |
If you are an NRI and want to transfer foreign income to India. You could avoid taxation liabilities with NRE account. |
If you are an NRI who has earnings in India; i.e. Rental, Stock Dividends, Interest, Pension, etc. |
Stock Market Investment |
NRE account (with PIS) is required to buy/sell stocks in India. |
NRO account (Non-PIS) can also be used to buy/sell stocks in India on non-repatriation basis. |
Equity Derivatives Trading |
NRE account (with or without PIS) cannot be used for Equity F&O trading in India. |
NRO account is required for trading in Equity Derivatives in India. |
Mutual Fund Investment |
Can use NRE Account for MF investment in India. |
Can use NRO Account for MF investment in India. Only the capital appreciation is repatriable, not the principal amount. |
IPO |
Can apply in IPO using NRE account including PIS or Non-PIS Account. NRIs must furnish their bank details, besides the date of allotment and cost of acquisition of the shares to calculate the tax on any gains they may have made. |
Can apply in IPO using NRO account. |
The brokerage fee for the NRO and NRE demat and trading account are the same. The NRE and NRO demat account works in a very similar way. The major difference is NRE bank account transactions are reported to RBI.
Following are the brokerage charged by popular stock brokers in India-
The minimum balance requirement differs from bank to bank and can generally range anywhere between Rs 5,000 - Rs 25,000.
NRIs are required to maintain the minimum balance in the NRE and NRO accounts opened with the banks. The PIS account generally has no minimum balance requirement as each time an NRI trades, they are required to transfer the funds from NRE or NRO account to the PIS account as per the requirement.
An NRE account is a repatriable account. Thus, an NRI can freely transfer funds from NRE to NRO account without any restrictions by initiating an online fund transfer request.
An NRI can also transfer funds from an NRE account to another NRE account.
An NRO account is a non-repatriable account in nature. Thus, an NRI cannot freely transfer the funds from NRO to NRE account.
Earlier this transfer of funds from NRO to NRE account was strictly prohibited. However, RBI has now permitted to repatriate funds from NRO to NRE account to the extent of USD 1 million per financial year subject to certain restrictions and documentation.
An NRI is permitted to open two separate trading accounts i.e. NRE and NRO to trade on repatriation as well as non-repatriation basis simultaneously.
To trade on a repatriation basis, an NRI will additionally require PIS approval to be linked with the NRE trading account.
The PIS approval is not mandatory for trading on a non-repatriation basis. Thus, if your broker is providing the facility to trade without PIS for the NRO mode of transactions, PIS approval is not required to be linked with the NRO account.
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