Exploring different types of NRI accounts

When you become a Non Resident Indian (NRI), you face a dilemma - what to do with the bank accounts?

You know that as an NRI, you need to open special accounts. But which accounts are these? How to go about opening them? Here is a quick guide.

The types of accounts

Non-resident Indians can primarily open two types of accounts - Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts.
Both are rupee denominated accounts, and are meant specifically for NRIs.

Non-Resident External (NRE) Account

The money in an NRE account is held in Indian Rupees. And NRE account can be a savings account, a current account, or a fixed / term deposit account.

The main advantage of an NRE account is that the money from this account can be repatriated - that is, the funds held in this account can be freely sent to another country. Money can also be transferred from an NRE account to an NRO account without any restriction.

Similarly, the NRE account can hold money remitted from abroad, or the money received from another NRE account in India.

Another big positive of an NRE account is that the interest earned from an NRE account is fully exempt from income tax.

An NRE account can be held jointly by more than one non-resident Indians. A resident holding a power of attorney (PoA) cannot open an NRE account on behalf of an NRI, but such a PoA holder can make local payments in Rupees on behalf of the NRI account holder.

If the non-resident Indian who holds the NRE account comes back to India and becomes a resident of India, the NRE account is converted into a regular resident account.

Nomination is allowed for NRE accounts.

Non-Resident Ordinary (NRO) Account

Just like an NRE account, the money in an NRE account is also held in Indian Rupees. And NRO account too can be a savings account, a current account or a fixed / term deposit account.

An NRO account can be opened by NRIs. A regular bank account also gets converted into an NRO account if the account holder becomes an NRI.

The main difference between an NRE and NRO account is that the money cannot be repatriated from an NRO account. Thus, the money held in an NRO account has to be used only for local payments in Indian Rupees. Also, funds cannot be transferred from an NRO account to an NRE account.

Similarly, an NRO account can only contain money received from within India.

The interest earned on the money help in an NRO account is taxable.

The biggest advantage of an NRO account is that it can be held jointly with another NRI or even with a resident Indian. However, a resident power of attorney (PoA) holder cannot open an NRO account on behalf of a non-resident Indian. But such a PoA holder can make local payments on behalf of the NRI.

If the non-resident Indian who holds the NRO account comes back to India and becomes a resident of India, the NRO account is converted into a regular resident account.

Nomination is allowed for NRO accounts.

- Raag Vamdatt

The author writes about personal finance topics like income tax, saving, investment, insurance, loans and more at Financial Planning Demystified.