When we talk about NRI banking in India, we usually hear three terms: NRI, NRE and NRO. People often use these terms in the sentence but they actually mean different things. NRI is a status while NRE and NRO are two types of bank accounts. If you are an NRI you need to understand the difference between these terms to manage your finances properly in India and your home country.
What Is an NRI?
NRI means Non-Resident Indian. This is not a type of bank account. A status that shows where you live. According to the Foreign Exchange Management Act if you are a citizen and you stay outside India for more than 182 days in a year or if you plan to stay abroad for work or business you are considered an NRI.
This status is important because it decides what kind of bank accounts you can have in India how your income is taxed and what rules you need to follow for investments and owning property. Once you become an NRI you cannot use a savings account in India anymore.
What Is an NRE Account?
An NRE account, or Non-Resident External account, is a banking solution tailored for Non-Resident Indians. This type of account provides NRIs with a secure method to manage and hold the income they earn while residing outside of India.
Here are some key things to know about NRE accounts:
* You can put money into an NRE account from abroad. It will be changed into Indian rupees.
* The interest you earn on this account is not taxed in India.
* You can take all your money out of the account. Send it abroad whenever you want.
* You can only have a NRE account with another NRI or with someone who has a special status like PIO or OCI.
NRE accounts are great for NRIs who want to save their salary or income from a business outside India.
What Is an NRO Account?
An NRO account or Non-Resident Ordinary account is a type of bank account that NRIs can use to manage the money they earn in India. Here are some key things to know about NRO accounts:
* You can put money into an NRO account from India like rent or dividends and also from abroad.
* The interest you earn on this account is taxed in India.
* You can only take an amount of money out of the account and send it abroad each year.
* You can have a NRO account with someone who lives in India.
NRO accounts are great for NRIs who have income in India like rent or dividends.
Here is a simple way to compare NRE and NRO accounts:
* NRE accounts are for money you earn outside India. The interest is not taxed.
* NRO accounts are for money you earn in India. The interest is taxed.
* You can take all your money out of an NRE account. Send it abroad but there are limits on how much you can take out of an NRO account.
Can You Hold Both?
Yes you can have both NRE and NRO accounts. In fact it is an idea for NRIs to have both accounts if they have income in India. You can put your salary into an NRE account and your Indian income into an NRO account. Having both accounts helps you follow the rules and keep your income separate which can help you save money on taxes.
NRI is a status that shows where you live. NRE and NRO are types of bank accounts that are used for kinds of income. The main difference between them is that NRE accounts are for income and are not taxed while NRO accounts are, for Indian income and are taxed. As an NRI you should have bank accounts that match where your income comes from. You should put your income into the right account.
