NRIs have to open non-resident external (NRE) and non-resident ordinary accounts in India as the government of India doesn’t allow them to hold accounts in their name in India.
Thus, NRIs open NRE as well as non-resident ordinary (NRO) accounts in India. While these accounts seem to be similar, they are quite different from one another.
- Rupee-denominated funds: These can only be deposited in NRO accounts and not in NRE accounts; these deposits include rent income, dividends, pension amount, etc.
- Repatriation: An NRI cannot remit more than USD 1 million (including taxes) from an NRO account in a financial year. However, repatriation is free for NRE account holders.
- Tax liability: NRE accounts are tax-free. This means they don’t attract any income tax, wealth tax or gift tax in India. In contrast, the interest earned in NRO account and credit balances are subject to respective income tax bracket. They are also subject to applicable wealth and gift tax.
- Joint account: You can open a joint NRO account with another NRI or a resident Indian who is a close relative. A joint NRE account, however, can only be opened by NRIs.