Non Resident Indian Accounts - NRE vs NRO vs FCNR Bank Accounts

Money Transfer to India - Various Account Options

In this blog, we will discuss various options available to Indians residing overseas to save and invest their money in India. There are various investment and savings vehicles available to the Indian community residing overseas, and in this post, we will focus on the possible banking options to invest money.

Before we get going, lets explain some terms that we will be using throughout this article.

NRI

A Non Resident Indian (NRI) is a person resident outside India, who is a citizen of India or is a person of Indian origin.

PIO

A Person of Indian Origin (PIO) is a citizen of any country other than Bangladesh or Pakistan, if

1. he/she at any time held Indian passport, or
2. he/she or either of his/her parents or any of his/her grandparents was a citizen of India or
3. the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b).

RBI

The Reserve Bank of India (RBI) is India's central banking institution that guides and regulates the monetary policy of India. The RBI works closely with the Government of India to ensure economic and financial policies are implemented and executed well.

The RBI allows 3 primary types of accounts for Indians residing overseas. Below we discuss these account types and detail various important aspects like repatriation, tax treatment in India, allowed deposit types, etc. for each of them.

NRE - Non Resident External (NRE) Account

An NRE account is maintained in Indian Rupees (INR) and is a popular choice for overseas Indians to transfer money into. One of the key distinguishing factors of an NRE account is that the only allowable deposits are overseas funds. This means you can transfer money to an NRE account freely from overseas, but you cannot deposit monies earned in India (salary, rent, dividends, or any other income generated in India). This type of account allows free repatriation of money back to the overseas country; both the principal as well as interest can be repatriated. Additionally, there is no income, wealth or gift tax applicable in India. Note that you may have to pay tax in the foreign country on interest earned in an NRE account. The RBI also permits NRE accounts to be any of savings, current (checking), recurring or fixed deposit accounts. For fixed deposit accounts, there is a minimum maturity period of one year. Finally, an NRE account can only be jointly held with another NRI; resident Indians cannot be join holders with NRIs in an NRE account.

Below we summarize the main points about an NRE account.

1. Repatriation - Full repatriation (Principal and interest earned) flexibility.
2. Tax - Tax free (no Income tax, wealth tax and gift tax) in India.
3. Deposit type - Deposit of Rupee funds generated in India (such as salary, rent, dividends etc.) is not permitted.
4. Joint ownership - Can be jointly held with another NRI but not with resident Indian.
5. Currency - Indian Rupees (INR).
6. Types - Savings, current (checking), recurring or fixed deposit accounts (with maturity of minimum one year).

NRO - Non Resident Ordinary (NRO) Account

The NRO account differs from an NRE account in many significant ways. While an NRO account is also held in Indian Rupees (INR) and allows similar account types (savings, current, recurring or fixed deposit), there are some key distinguishing factors that you should be aware of. First and foremost, income generated in India (rents, salaries, dividends, etc.) is only allowed to be deposited into an NRO account. Next, NRO accounts are subject to tax treatment in India. Additionally, the repatriation flexibility of funds from an NRO account is restricted and limited - repatriation is allowed only after prior RBI approval, and cannot exceed United States Dollar (USD) 1 million per year. Finally, NRO accounts can be jointly held with an Indian resident (close relative) as well as another NRI.

Below we summarize the main points about an NRO account.

1. Repatriation - Restricted repatriation ability i.e - NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes. Balances cannot be repatriated without prior approval of RBI.
2. Tax - Interest earned in NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax.
3. Deposit type - Deposit of Rupee funds generated in India (such as salary, rent, dividends etc.) is only allowed to deposit it in NRO account.
4. Joint ownership - Can be held with NRI as well as resident Indian (close relative).
5. Currency - Indian Rupees (INR).
6. Types - Current, savings, recurring or fixed deposit accounts.

FCNR - Foreign Currency Non Resident (Bank) Account – FCNR (B) Account

The FCNR account's key differentiator is that it is held in a foreign currency (any freely convertible foreign currency) instead of being held in Indian Rupees (INR). Another major difference from NRE and NRO accounts is that an FCNR account can only be in the form of a term deposit of 1 to 5 years. Similar to an NRE account, funds in an FCNR account are fully repatriable and attract no taxation on interest earned in India. Note that you may have to pay tax in the foreign country on interest earned in an FCNR account.

Below we summarize the main points about an FCNR account.

1. Repatriation - Freely repatriable (Principal and interest earned).
2. Tax - Interest is Tax free in India.
3. Deposit type - All credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments.
4. Joint ownership - can be held with NRI as well as resident Indian (close relative).
5. Currency - Account can be held in any freely convertible foreign currency.
6. Types - only in the form of term deposits of 1 to 5 years.

We enumerate the differences in the above 3 account types in the table below for easy reference.

NRE vs NRO vs FCNR Account - Easy Comparison Reference

So, which account is best for you?

The answer is, it depends on your situation and need. Below are some high level guidelines that may help with picking the best account type.

Choose an NRE account if your primary goals are to save your overseas monies in Indian Rupees (INR) and full flexibility for repatriation of funds. Other pertinent considerations for NRE accounts are no tax in India and joint ownership with another NRI. On the other hand, if your primary need is to deposit income from earnings in India, an NRO account is the best option. Finally, the FCNR account may be a good option if you want to keep your earnings in foreign currency while retaining full repatriation flexibility.

Happy remitting money back home to India and putting your hard earned money into these accounts available to non-resident Indians!