What Are NRE, NRO, And FCNR Bank Accounts?
A non-resident Indian who wishes to open and manage a bank account in India has many account options, including NRE, NRO, and FCNR. Read on to know more about their features, benefits, and how to choose the right account.
If you are a Non-resident Indian (NRI), then you may have a source of income both in India and abroad, and you want to frequently transfer the money you have earned overseas to your family in India or vice-versa. To manage your money, you may need to maintain a bank account. As an NRI, you can choose between an NRE, NRO, and FCNR account. Let us look at these account types in detail below:
A Non-Resident External account is a type of NRI bank account that allows you to deposit the money earned in a foreign country in Indian banks and maintain the same in Indian currency. The account allows you to deposit any foreign currency of your choice, and the amount is converted into INR as per the prevailing exchange rate at the time of deposit.
One of the significant features of this NRI bank account is that the deposits in your account are fully repatriable or transferable to your overseas bank account or your NRO account. There are no charges involved for such transfers. Since the account is maintained in INR, the withdrawals are permitted in INR only, which means you can use the amount to make payments in India.
The Indian banks allow you to maintain an NRE account as a savings account, current account, or term deposits, and irrespective of the type of account you hold, you get interest on the deposits. The interest rate for NRE fixed deposits are marginally higher than the interest on NRE savings account, and both are exempted from tax under the Indian Income Tax Act provisions.
The Non-Resident Ordinary account is an INR-dominated account, which means you can hold the deposits in Indian currency only. If you have a business operation in India or have any other income source like home rent, pension, dividends from investments, then having an NRO account will be useful to manage these incomes. NRO account allows depositing of money that is earned in India only.
NRO account allows you to park your earnings in India safely in a bank account while you live abroad and earn valuable returns on it in the form of interest payments. However, you must know that unlike the NRE income, the interest earned from NRO account deposits is considered as an income and is taxable.
You can hold an NRO account either as a savings account or as a fixed deposit. You can even operate a joint account with another Indian resident; it can be your spouse, children, or parents. Another significant feature of this account that distinguishes it from an NRE account is that, as per the Reserve Bank of India mandate, the deposits held in the account are repatriable to a maximum limit of USD 1 million in a financial year.
Foreign Currency Non-Resident Account allows you to open and operate an account in foreign currencies. It can be opened only as a fixed deposit account, and the deposits are made in specific currencies like Euro, Japanese Yen, Australian Dollar, British Pound Sterling, American Dollar, etc.
The tenure for FCNR deposits range from one year to five years, and you have the flexibility to choose the term based on your specific needs. One of the significant features of this account is the interest is paid in the same currency as you hold the deposit. Also, the interest earned from the FCNR account is fully exempted from tax. The FCNR rates are generally higher than the interest rate offered to fixed deposits held by resident Indians.
Now that you know the different types of NRI bank accounts, you can choose the one that best suits your financial objectives and specific needs. Today, almost all the major banks in India offer NRI bank account services, and they provide online services, which makes it easier for you to manage the account from the country of your residence.