Settling down in a new country is not a trouble-free task. The process involves wrapping up things at your current place of residence and starting things anew in a completely different location. It also leads way to other fundamental changes of living, starting from a new bank account to a new residence. Understand all the financial aspects of opening up an NRO account or an NRE account, best-suited for your needs.

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Who is an NRI?

The Indian government has varied definitions as to who are termed as non-residents of India.

According to the ITA (Income Tax Act), an Indian resident who moves out of the country for the point of employment may be defined as a non-resident of India if he/she is not actually present in the nation for over 181 days in a fiscal year (April to March).

On the other hand, according to the FEMA (Foreign Exchange Management Act, 1999), a person who has left India for the reason of employment outside the nation-state is considered as an NRI beginning from the day and date on which he/she left the country.

Let us consider the advantages and disadvantages of each type NRI Savings Account in detail.

Non-Resident External (NRE) Account

For those people who want to send their abroad earnings to India are necessitated to open a Non-Resident External Rupee Account (NRE), an Indian rupee-denominated account in India.

It is also tremendously functional when NRIs need to meet monetary obligations back home such as household expenses, disbursement of children’s school fees and investing for retirement.

One of the benefits of an NRE Account is that it can be opened as a joint account with both NRIs and Residents of the country.

Non-Resident Ordinary (NRO) Account

Similar to NRE accounts, Non-Resident Ordinary Rupee Accounts (NRO) are also rupee-denominated accounts. These accounts are intended for those who want to put the earnings in India arising from rent, dividends, salaries etc.

NRO accounts can also be opened as a joint account with other Non-Resident Indian(s) and Resident Indians. But, only a close relative can be added as the joint account holder in NRO accounts.

Foreign Currency Non Resident (FCNR) Deposit

Those who wish to protect themselves from cash risk have the alternative to open a Foreign Currency Non-Resident (FCNR) deposit. This is mainly a term deposit which holds cash amount in foreign currency such as US Dollar, UK Pound, Canadian Dollar, Euro, and Japanese Yen as well as others.

Similar to NRE accounts, interest earned on this deposit is excused from tax in India and cash is liberally exchanged outside India.

The Bottom Line

If the majority of your income is from investments and employment out of India, the wise decision would be to open an NRE account to freely move your funds between India and your country of residence.

By Chakraborty

Dr Chakrabarty is the Chief Innovation Officer of IntuiComp TeraScience. Earlier she was Assistant Professor of Delhi University, a QS ranked university in India. Before that she has held research positions in IIT Mumbai, IIT Chennai and IISc Bangalore. She holds 2 patents and over 20 research publications in her name which are highly cited. Her area of research is in smart technologies, integrated devices and communications. She also has a penchant for blogging and is an editor of Business Fundas.