Savings Account is a popular banking product that facilitates income management. It acts as a medium through which an individual can save funds effectively. But this facility is not available in the standard way to a Non-Indian Resident. As per the Foreign Exchange Management Act guidelines, they must convert their Savings Account into a Non-Resident Savings Account. Preferably as soon as they move overseas.
An NRI Account is meant for global Indians. It facilitates their foreign transactions and holds their earnings systematically. It also comes in two distinctive types. They are as follows:
- Non-Resident Ordinary (NRO) Savings Account
- Non-Resident External (NRE) Savings Account
Both help manage the holder manage funds in India. However, they have their distinctive features. A prime example of this is their interest rates. NRO Savings Account interest rates differ from that of an NRE Account considerably. Here is how:
- Repatriation rules
Funds held in an NRO Account are only transferable to a certain extent. For example, the holder can repatriate up to $1 million, including taxes, in a financial year. Also, they must consult a chartered account to generate such transfers. On the other hand, an NRE Account offers free repatriation. The holder’s principal amount and NRE Savings interest rates are not subjected to any restrictions.
- Deposit guidelines
An NRO Account is used primarily for Indian income like dividends, rents, interest, etc. You must deposit money frequently to earn through NRO Savings interest rates. However, an NRE Account’s primary purpose is to maintain your foreign earnings as deposits. In only some cases, it allows you to invest in foreign currency. But the funds get held in INR.
- Taxation
Taxability is a central point of differentiation between the two NRI Accounts. An NRO Account interest rate is not exempt from taxes as per the Income Tax Act. To dodge this liability, the holder must opt for a Double Taxation Avoidance Agreement through your bank. NRE Savings Account interest rates are entirely tax-free. The holder need not worry about interest deductions.
- Exchange rate policies
An NRO Account maintains your deposits in foreign currency. Hence, it does not face any currency conversion fluctuations. The same applies to the NRO interest rate. But an NRE Account converts your funds into INR. It gets exposed to conversion loss and exchange rate deviation. So its interest rates also vary according to the exchange rate policies.
- Conclusion
Although different, an NRE and NRO Account fulfil a host of banking needs of an NRI. Thus, assessing and comparing the features is advisable to make a suitable pick. For further guidance and advice, contact your banking partner.
