Planning to relocate overseas?

5 MinsDec 15, 2021

Anupreet Singh has just got a new job offer in the USA and is planning to shift soon. His parents will continue to stay in India. He has a couple of bank accounts here and also a house which will be given out on rent. He is trying to figure out the best way to manage his finances and what to do with his investments and finances in India. The two options available to him once he changes his status to NRI are to open an NRE (non-resident external) account and an NRO (non-resident ordinary) account.

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What is the difference between an NRE and NRO account?

An NRE Account is a new account opened by an Indian citizen who goes abroad to take up employment or business where the duration of stay is more than six months. As an NRI (Non-resident Indian), you can deposit all your foreign earnings into this account. This account is for inward remittances like foreign currency transfer, foreign demand drafts, travellers' cheques or foreign currency. NRE accounts are exempt from tax. The balance and the interest earned in these accounts is 100% tax-free.

An NRO Resident Account is an existing savings bank account that is converted into an NRO account. This account can be used for income earned in India (like Anupreet’s rent income) and any other earnings. It can also be used to remit funds from abroad, just like an NRE account.

However, keep in mind that interest on NRO accounts is taxed at different tax slabs as per the Direct Tax Avoidance Agreement with the respective country. Whereas, the interest earned on NRE is exempt from tax.

Repatriation is another point of difference between NRE and NRO accounts. In NRE account, interest and principal in the account can be repatriated freely without any limitation. However, in NRO account, for Non Current Income the repatriation is permitted up to USD 1 million during the current financial year and for current income eg Interest on Saving Bank A/c and FDs, Dividend on shares/Mutual fund units, Rent and Pension it can be repatriated freely without any limitations.

[Also ReadDifference Between NRE & NRO Account]

What makes more sense for Anupreet, an NRE or NRO account?

If Anupreet plans to sending money to India regularly, he should open an NRE account. He will save a lot on taxes. He should also convert one of his existing Indian savings bank accounts into an NRO account where the house rent earned can be deposited.

Anupreet can convert his existing savings bank into an NRO account with his parents. Both NRO and NRE accounts can be opened up between a NRI and an Indian resident or between two NRIs. In case of joint accounts with NRIs, the mode of operating is either or survivor.

How does Anupreet convert his savings account into an NRO account?

Opening both an NRE and an NRO account is very simple. It can be done by visiting a bank branch or through remote assist/ non face-to-face account opening. Most banks today allow this facility. The documents required for opening these accounts are:

  • Valid passport copy: Name, date of birth, address, expiry date, place of issue with date, photograph and signature
  • Document confirming the address abroad. This address should match the address on the application form.
  • NRI status proof: This can include a work permit, residence permit, residence or work visa
  • Document confirming the Indian address
  • PAN card copy or Form 60 if PAN card is not available
  • Passport-sized photograph
  • The first amount is transferred to the account by either cheque or a demand draft

Two points to keep in mind while opening these accounts:

  • If Anupreet converts a zero-balance account into an NRO account, it will now require a minimum balance.
  • If he decides to open this account while he is overseas, he needs to get his documents attested. The Indian Embassy, an overseas banker or a notary can do this attestation.

Axis Bank offers a range of NRE accounts and NRO accounts for Indians living overseas. These accounts are easy to open and come with several benefits.

Disclaimer: The Source, a content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.