For all Non-resident Indians, there are two main types of accounts that they can open with Indian banks, viz.
The accounts can be savings, current, recurring or fixed deposit based on the individual’s preference. Both these accounts are in the Indian currency and a specific minimum monthly balance has to be maintained for seamless operations. You can also get attractive fixed deposit rates up to 7.20 per cent, annually.
The NRE fixed deposit account can be opened in the name of two or more NRIs. It is useful for NRIs who earn in foreign currency outside India and wish to get it converted to Indian currency denominations. The benefit of the account is that the principal amount as well as the interest - both are completely repatriable. The amount in this fixed deposit account also gets tax exempted interest income under section 10(4) of the Income Tax Act. The interest rate offered in the account is usually high as compared to the local accounts and can be easily opened online. You can also avail the benefit of investing in mutual funds by linking your account to the investment account. This service is offered by all leading banks in the country.
The Non-resident Ordinary Account can be opened by Overseas Citizen of India (OCI) as well as Person of Indian Origin (PIO) along with NRIs. The income tax is applicable on the interest earned on principal amount in the NRO account. For anything earned in INR, the deposit can be made only in the NRO account and not the NRE account. Moreover, NRO account can be jointly held with an Indian resident as well, as long as the Indian citizen falls under one of the categories of relatives according to the Section 6 of Companies Act 1956.The repatriation that is processed through an NRO account has to be reported to the RBI.
If you want to manage your foreign currency earning in INR, you can opt for an NRE account, and if any earnings that are obtained in the form of Indian currency, be it rent money or interest payments, those can be saved in the NRO account. The NRO account should be preferred if you do not intend to convert the amount in your account and take it to another country in the near future. Now that you are clear on the difference between both the accounts, next time when you need to save your money, you know which option to choose.
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