Difference Between NRI and NRE Accounts (With Table)

NRI stands for Non-Resident Indians and it is a status given to Indian citizens who stay abroad for 183 or more days in a fiscal year. To open an NRI account one needs to meet the conditions of the Income Tax Act 1961. There are three types of NRI accounts and one of them is NRE. Once a person opens an NRI account, they can deposit money from both the residing country and India.

NRI vs NRE accounts

The difference between NRI and NRE accounts is that NRI accounts are of three types, namely, NRE, NRO, and FCNR. On the other hand, NRE represents only Non-Residential External candidates and account types. So, all NRE accounts are NRI accounts but not vice versa. 

Since NRI accounts represent three types of accounts, the features and benefits for them are distinguishable. But, all three types of accounts allow free flow of money, i.e., a person can transfer the entire fund to his/her residing country. In some cases, the full amount can be transferred while in other types the tax is deducted first. 

NRE accounts represent one type of NRI account and hence the features get narrowed down. A person having an NRE account can deposit money from the country of residence. This type of account, though accepts foreign currency transfer, keeps the balance in Indian currency. It means the money deposited (in foreign currency) gets denominated in Indian rupees. 

Comparison Table Between NRI and NRE accounts

Parameters of ComparisonNRI accountNRE account
DescriptionNRI accounts are of different types where a person can deposit money from both India and the current residing country. For an NRE account, a person can deposit money from the current country of residence.  
OrderThree are three types of NRI accounts, namely, NRE, NRO, and FCNR. All NRE accounts are NRI accounts but not vice versa. 
RepatriationUnder NRI accounts, some funds are taxable and some are fully transferred with interest. The funds in an NRE account are fully repatriated. Both the principal amount and interest are tax-exempted. 
Source countryThe fund can be deposited from both India and the country of current residence. In NRE accounts, the fund is deposited from the country of current residence and the balance is denominated in Indian rupees. 
Joint accountVaries with different types of NRI accounts. In the case of the NRE joint account, both account holders need to be NRIs. 

What is NRI account?

 According to the Income Tax Act 1961 those who fulfill the condition for being designated as an NRI can open an NRI account. There are three types of NRI accounts that are mainly, NRE, NRO, and FCNR. NRE stands for Non-Residential External, NRO stands for Non-Resident Ordinary, and FCNR stands for Foreign Currency Non-Residential. 

The three types of NRI accounts have different features and benefits. For example, one advantage of NRE accounts is that the full fund is allowed for repatriation and there is no tax charged for the principle and interest. But, a person having an NRE account can only deposit funds from the country of current residence. On the other hand, an FCNR account holder can deposit money and get a choice for the denomination. This includes converting the currency to the Canadian dollar, US dollar, Euro, Pound, Yen, etc.

Students who are pursuing degrees in foreign countries are eligible for opening NRI accounts. People who own businesses or trade-in a different country can also open an NRI account. It is not very complicated to open an NRI account. The documents required are employment proof, student visa/resident visa/ visa permit, passport, bank information, and KYC document (optional). 

What is NRE account?

 An NRE account is a type of NRI account that comes with several features and benefits. The most important condition of holding an NRE account is that the money getting deposited will be multiplied by the conversion rate of India. The account holder can deposit money from the country of residence and it will be denominated in Indian rupees. 

The best benefit of an NRE account holder is that the entire deposit money is repatriable and there is no tax charged on both the principal amount and the interest. A full option for repatriation means one can transfer the fund to a foreign account without any deduction of money. They can also earn an interest rate of up to 4.35 percent per annum on the NRE deposits. 

NRE accounts are used for both personal and business purposes in India. If a person wants to open a joint NRE account, then both the account holders have to be NRIs. 

Main Differences Between NRI and NRE accounts

  1. NRI accounts are of different types where a person can deposit money from both India and the current residing country whereas, for an NRE account, a person can deposit money from the current country of residence.
  2. There are three types of NRI accounts. All NRE accounts are NRI accounts but not the other way around. 
  3. Under NRI accounts, some funds are taxable and some are fully transferred with interest whereas the funds in an NRE account are fully repatriated and tax is exempted. 
  4. The fund can be deposited from both India and the country of current residence based on the type of NRI account whereas the fund in NRE accounts is deposited from the country of current residence and the balance is denominated in Indian rupees. 
  5. Joint account policy varies with different types of NRI accounts whereas both account holders need to be NRIs for opening a joint NRE account.

Conclusion

NRI accounts are of three types and each type serves certain benefits and purposes. The procedure to open an NRI account is simple once you meet the conditions of the Indian Tax Policy. From foreign students to Indians who stay abroad as an employee of a company, all are eligible for NRI accounts. 

In some NRI accounts, the money can be deposited from both India and the current residing country but in NRE accounts only the latter option is available. NRE accounts don’t charge any taxes and allow full repatriation. Nowadays, the minimum bank balance for most NRI accounts is 10,000 INR. 

References

  1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2009377
  2. https://www.researchgate.net/profile/Jayati-Ghosh/publication/316788440_Banking_on_Debt/links/5911a35fa6fdcc963e651d48/Banking-on-Debt.pdf
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