Although plenty of individuals have settled abroad, the Indian financial market still attracts investments from these individuals. While options such as stocks, mutual funds and other equities are popular investment options, they are affected by the volatile conditions of the market. In this case, the best and safest option for such NRI’s are the NRI saving accounts. However, choosing the right NRI saving account, namely, the NRO or the NRE account is crucial.
Each of these bank accounts comprises of different features, facilities and benefits to suit the unique financial needs. They include the following differences:
Ordinary Non-Resident Rupee i.e. NRO Savings Account:
The NRO account is the best choice for those who want to invest funds in the Indian currency. Additionally, those who want to invest income earned from India, such as rent, dividends, etc. can use this account to invest the earnings. On the other hand, the interest earned on NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax. However, when it comes to opening the account, an individual who has a status of PIO or OCI is allowed to open this NRO savings account. This account can also be held jointly with a resident or another NRI. If eventually, the account holder is returning to India permanently, this account is an ideal choice as it can be converted into a resident account easily. Apart from its investing benefits, it also offers plenty of remitting benefits. The NRO savings account has restricted reparability i.e. permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year. However, a chartered accountant would need to provide an undertaking and certification to support this claim.
Non-Resident External i.e. NRE Savings account
This type of NRE account is the best choice for those who want to ensure their overseas earnings is invested in the foreign currency and remitted in the local Indian rupee. The funds in this account are also easily liquidated and hence makes it easier for remitting. Added to this feature, is the free reparability of the principal and interest that is earned in this account. Therefore, this is a good way to invest and earn interest on a long-term basis. Additionally, the savings account for NRE is tax-free. However, when it comes to opening the account, only an NRI can open it. Additionally, the NRE account can be jointly held with another NRI but not with resident Indian.
Both accounts have their different benefits, suited for different financial requirements. For NRI’s who are planning to stay abroad for long term purposes, the NRI account is the best solution. All that is required to maintain the account is by occasionally depositing funds from abroad or through local pensions.