What are NRE and NRO accounts, and is it mandatory to open an NRI account?

Indian citizens may move out of India for any reason, be it a better career opportunity, for an educational course, or because of a job transfer from India to abroad. Once you stay out of India for a stipulated number of days, you’ll achieve NRI or Non-Resident Indian status.

According to the FEMA act, an NRI is defined as a person who is a citizen of India who lives outside India.

A person can be termed an NRI if they meet the following criteria:

– If they have visited India for less than 120 days in a year and have an Indian income that is more than Rs. 15 lakhs in a financial year.

– Visiting NRIs whose total income in India is up to Rs. 15 lakhs in a financial year if the stay in India does not exceed 181 days.

What are NRE and NRO accounts?

When an Indian citizen becomes an NRI, the chances are high that they have a family back home in India, or at least some relations that they have to maintain. They may also have a property to be managed or some of the other financial affairs. It can be difficult to manage finances in India after you move abroad, and hence the need arises for an NRI account so that finances in India can be managed.

But you may ask, can your regular Indian savings account be used for the same? The answer is no. The FEMA act does not allow NRIs to hold a regular native savings account. And hence you need a different NRI account to maintain financial affairs in India.

NRI accounts are mainly of two types:

NRO Account

An NRO or Non-Resident Ordinary Account is designed to manage income from Indian sources. If you’ve rented out the property, invested in the stock market etc., then you can have income from these sources deposited in your NRO account. If you had savings in a regular native account prior to becoming an NRI, then you can easily convert your existing account into an NRO account.

Features of NRO Account

  • Deposit earnings from Indian sources
  • The account is maintained in INR
  • Power of attorney can be assigned to operate the NRO account on your behalf
  • Can be opened jointly with Indian resident
  • Funds are not repatriable; that is, funds from the NRO account cannot be moved out of India.
  • Funds from an NRE account can be transferred to an NRO account but not vice versa.
  • NRO account can be used for mutual funds investing and stock market investments.

NRE Account

An NRE account is specifically meant to hold income earned from foreign sources. So, if you earn income from abroad and wish to make an NRI deposit, you can use an NRE account.

Features of NRE Account

  • Maintained in INR
  • Funds are fully repatriable; that is, they can be moved out of India.
  • Used to receive foreign currency
  • Funds in NRE accounts, as well as interest earned, is completely tax-free.

Is it mandatory to open an NRI account?

As an NRI, if you wish to manage finances in India, then the FEMA law states that you must have an NRO or NRE account to do it since a native savings account is not allowed for NRIs.

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