NRE account or NRO account– A concern for Indian Immigrants

Immigration to a new country in order to explore better work and living opportunities is the latest craze of the century. It won’t be very surprising to find Indians with citizenship of different countries. Also despite holding an Indian passport, one becomes a non-resident Indian (NRI) when they stay out of India for more than six months. While majority of developed countries do permit Dual citizenship, India’s regulations would makes it essential for the Indian immigrants to surrender their passport, before they apply for citizenship of another country. So how does it impact their banking status in India?

Whether holding a Non-resident status or foreign citizen of Indian origin, it is a good idea to maintain a bank account in India. Many people use it to transfer money to their family and support them. Sometimes, money in these accounts is also used by them to purchase real estate and make mutual funds investment in India. Also, Indian government provides tax benefits to them if they make investments in India.

NRO and NRE accounts are the two banking channels that are used by NRIs and foreign citizens of Indian origin. Both these accounts have their share of disadvantages and advantages. Being an NRI or a person of Indian origin (PRI), it will be helpful, if they are clear about the distinction between the two accounts along with their pros and cons.

NRE accounts – OCBs or Overseas corporate bodies along with NRIs and PIOs can open this account. This may be a fixed deposit, recurring account and savings account. Deposits in NRE accounts must be made through foreign exchange remittances. These are the most common type of accounts that are preferred by NRIs, in order to make any kind of investment in India. Interest on these accounts is exempted from tax and is completely repatriable.

The person who holds the power of attorney in India can carry out withdrawals from these accounts and operate it. Usually, it is NRI’s close relative, though it may also be the person who has been advising NRI about his property or mutual funds investment in India. The income from the mutual funds is also credited to this account. The holder of these accounts also enjoys the option of withdrawal in the foreign currency of their choice, anytime, as the balance of NRE accounts is completely repatriable.

In case they have purchased any property from the funds in the NRE account and there have been regular remittances into the foreign currency from the same account, it is only the property’s acquisition cost that can be repatriated.

But when the proceedings of the sale is in Indian Rupees, repatriation cannot be done through NRE accounts as no Indian Rupees deposit is allowed for these accounts. In cases where funds are borrowed by any NRI from an Indian bank, payments for monthly installments that are made from the foreign currency is included in the cost in which property has been acquired. This is comprised in the total cost that you can repatriate during the sale.

NRO accounts – Foreign currency remittances can be deposited into these accounts by PIOs, NRIs and OCBs. Any person who holds the authority of an attorney for these accounts may also deposit the money into these accounts in Indian Rupees (INR). Such accounts are best suited for an NRI, who have a constant income coming in from their Indian sources, such as monthly rental from a property in India.

However, interest on the available balance in these accounts is liable to taxes. Also, account holders are not allowed to repatriate this interest outside India. But amount deposited in these accounts from the sale of property can be repatriated until the acquisition cost.

So, depending on specific needs, one may maintain either or both the NRO and NRE accounts.