Know the difference between NRE and NRO account

A Non-Resident Indian is often faced with the situation of maintaining a Rupee account in India. Primarily there are two reasons for opening such account: NRI wants to repatriate overseas earned money back to India and/or NRI wants to keep India based earnings in India.  NRI has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account. An NRO account can also be opened by a Person of Indian Origin (PIO) and an Overseas citizen of India (OCI). 


Similarities between NRE and NRO accounts: 
Both accounts can be opened as Savings as well as current accounts and are Indian Rupee accounts. One needs to maintain an average monthly balance of Rs 75000 in both NRE and NRO accounts. 


The Differences between NRE and NRO accounts: 

1. Repatriation: NRE account is freely repatriable (Principal and interest earned) while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant. 

2. Tax Treatment: NRE account is Tax free (no Income tax, wealth tax and gift tax) in India. On the other hand the interest earned in NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax. 

3. Deposit of Rupee funds generated in India: If an NRI/PIO/OCI  is earning income originating in India (such as salary, rent, dividends etc.) he/she is only allowed to deposit it in NRO account. Deposit of such earnings is not permitted in NRE account. 

4. Joint Holding: NRE account can be iointly held with another NRI but not with resident Indian. On the other hand NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956. Choose NRE accounts if you: (Primary reason) want to park your overseas earnings remitted to India converted to Indian Rupees; want to maintain savings in Rupee but keep them liquid; want to make a joint account with another NRI; want Rupee savings to be freely repatriable Choose NRO account if you: (Primary reason) want to park India based earnings in Rupees in India; want account to deposit income earned  in India such as rent, dividends etc; want to open account with resident Indian (close relative)


Read more at: http://www.moneycontrol.com/news/fixed-income-bank-deposits/knowdifference-between-nrenro-account-_875207.html?utm_source=ref_article

FCNR fixed or term deposits - Good time to invest for NRI

Should you Invest in FCNR fixed or term deposit?

FCNR (Foreign Currency Non Resident) Deposit is another way NRI can invest money in fixed deposit, Along with popular NRE and NRO Fixed deposit. Since deregulation of interest rate on FCNR deposit earlier this year, In an attempt to arrest Rupee slide against USD and attract more dollars from NRI customers, FCNR deposit has become an attractive alternative for NRI. As I mentioned in my earlier post Good time to invest in NRE fixed deposit that interest rates and exchange rate both are in favor of NRI and its really good time to invest money on NRI fixed deposits. Now like many other NRI first confusion comes on What is this FCNR deposits, Should I invest in FCNR deposit or NRE fixed deposit and several other doubts which prevents many of NRI from investing quickly. In this article we will looks some basics of FCNR deposit and given nature of FCNR deposit we will be able to decide whether investing in FCNR deposit is good option or not ?

What is FCNR Fixed Deposit

FCNR deposit stands for Foreign currency Non Resident deposit where an NRI invest his foreign currency like USD, AUD, GBP with an Indian bank like ICICI, SBI, HDFC or Kotak Mahindra etc. FCNR term deposits are like placing money in local deposit but you are likely to get better interest rates on FCNR term deposit than what your local foreign bank can offer. especially after deregulation of interest rates on FCNR fixed deposit and increased competition between many Indian banks like ICICI, HDFC, SBI and Kotak Mahindra.

Features and Benefits of FCNR Fixed Deposits

Features and Benefits of FCNR fixed deposit varies from Bank to Bank but here are some of the common features :

1)Low deposit Amount

Minimum deposit amount is quite low, you can open FCNR term deposit with ICICI bank with 1000 USD or EURO. for other foreign currency also deposit amount is reasonably low.

2)Tax Benefit

Interest earned on FCNR term deposit or fixed deposit is tax free in India. Though it may be taxable in the country you are living like USA calculate tax on global income of there residents.

3)Flexible tenures

Most of the banks offers FCNR term deposit in various tenures starting from 12 months to 5 years. you can choose the term which is best suited you, Also for lower tenure you may get better interest rates but given the relatively higher interest rates available currently, its better to invest amount for medium period.

Who should invest in FCNR term deposit

FCNR (Foreign currency Non resident) term or fixed deposits are best suited for NRI who wants to keep there money on Foreign currency like Dollars (USD) or Euro etc. Main benefit of FCNR term deposit is that it avoid currency risk. So if you intention to repatriate whole amount back to USD then keep that in FCNR because if Rupee depreciate further which is not unlikely given current volatility in currency market, It may wipe off all the interest earned in Indian rupee when you convert those into USD.

Difference between FCNR and NRE Fixed deposit

Main difference between an FCNR term deposit and NRI term deposit is that, In FCNR money remains in Foreign currency like dollar while in NRE fixed deposit money remain in Indian Rupee, which means there is a currency risk involved if you want to convert Rupee back to dollar. Another difference between FCNR and NRE fixed deposit is that mostly you get lower interest rate on FCNR deposit, similar to what foreign banks offer but you get a better interest rate on NRE fixed deposit because of currency.

FCNR deposits for NRI - Frequently asked question Answers

Here are a list of some frequently asked questions related to FCNR (Foreign currency Non resident) term deposits :

1) Does Interest earned on FCNR fixed or term deposit taxable in India ?

Good news, You don't need to pay tax on Interest earned on FCNR fixed deposit in India.

2) What are common tenures for which NRI can open FCNR term deposit ?

Similar to NRE fixed deposit, you can also open FCNR term deposit from 12 months to 5 years time frame.

3) Can I jointly open FCNR term deposit  ?

Yes you can jointly open FCNR term deposit but other account holder must be a Non Resident

4) Can you break FCNR term deposit prematurely before completing tenure ?

This is something vary bank to bank, most of the banks like ICICI doesn't pay you interest if you break the FCNR deposit before completing one year, other may charge penalty for same. Before investing on FCNR check with bank on there policy of premature withdrawal of money from FCNR term deposits.

That's all about FCNR (Foreign currency Non resident) term deposit, Its great opportunity and if you want to keep your money in there foreign currency to avoid currency risk, consider and explore FCNR term deposits before putting your money on local banks, with Rupee sliding further and high volatility in currency market, FCNR is good bet for hedging currency risk for personal investment.

5 Differences between NRE and NRO Fixed deposit -HDFC ICICI SBI Kotak

Difference between NRE and NRO fixed deposit

NRI has two option to invest in Fixed deposit in India NRE  fixed deposit and NRO fixed deposit but you need to be careful whether you choose NRE or NRO fixed deposit as taxation rules on NRE and NRO Fixed deposit is different. Principle and Interest earned in NRE fixed deposits are completely tax free, while interest earned on NRO fixed deposit are subject to TDS and deduct at maximum rate of 30%. Also you can send rupees back to your overseas account if it is held in NRE fixed deposit, but you can not repatriate money from NRO fixed deposit. In this article we will see some differences between NRE and NRO fixed deposit opened with any Indian banks like ICICI, HDFC, SBI or Kotak Bank and find out whether you should open NRE fixed deposit or choose NRO fixed deposit based upon your requirements. In short, if you are opening fixed deposit from overseas money by converting it into rupees then send it to your NRE saving account and create a NRE fixed deposit right there. On the other hand if money is earned in Indian rupees via different income sources e.g. dividend, or income from rent than you must have a NRO saving account to receive those amount, use this amount to create a NRO fixed deposit. In both the cases its not good to leave money idle, because they will earn less interest rates. Also if you eventually thinking to repatriate or send money back to your overseas account, think of opening an FCNR fixed deposit, this will reduce your exchange conversion risk and you may yield better returns if US dollar become stronger in next few years. 

Difference on NRE and NRO FD

NRI can open both NRE and NRO FD in one bank and online by using his NRE or NRO Savings accounts but before opening NRE or NRO FD, you must know taxation rules related to both of them because that will make difference in your overall interest gain or yield. Here are few notable difference between NRO and NRE fixed deposit :

1) First and major difference between NRE and NRO fixed deposit is that interest earned on NRO fixed deposit is taxable in India. it means you need to pay income tax on all there interest you earned in NRO fixed deposit with a rate of 30.9% which is quite higher, on there other had interest earned on NRE fixed deposit is exempted from tax in India. Which means you don't need to pay any income tax on interest accrued in NRE fixed deposit. This difference alone is significant enough to choose NRE fixed deposit over NRO fixed deposit. By the way if you don’t have lump sum amount to invest, you can take benefit of NRE or NRO Recurring deposit, to lock your money with higher interest rate and soaring exchange rates.

2) Another difference between NRE and NRO fixed deposit is that, In case of NRO fixed deposit you can not repatriate principle back to foreign country, you can only transfer interest earned on NRO fixed deposit to foreign country or abroad where you staying. On the other hand NRE Fixed deposit allows you to transfer both principle and interest to abroad. Everything from principle to interest earned are fully repatriable in NRE fixed deposit. This is another significant difference between NRO and NRE fixed deposit which suggest choose NRE over NRO FD.

3)One more difference between NRE and NRO term deposit is that you can open NRO term deposit jointly with your family member which is not NRI,means parents staying in India or any immediate family member staying in India can hold NRO term deposit along with you. On the other hand NRE term deposit can only be open jointly with another NRI, which is kind of restriction if your family is staying in India. This can be very important difference depending upon personal situation of NRI. IF you are a unmarried software professional working in abroad and want to open joint fixed deposit than you can choose NRO fixed deposit over NRE fixed deposit. If you want to keep your money on foreign currency like USD, GBP, AUD etc, you can also choose to open FCNR fixed deposit with HDFC Bank, ICICI, SBI, RBS and Kotak Mahindra. FCNR deposits are free from exchange rate risk and also provide better interest rates than Fixed deposit with local foreign banks e.g. Citibank or Bank of America in US and Canada

4) Another difference between NRO and NRE term deposit is interest rates. Currently difference on interest rate is not much between NRE and NRO fixed deposit but if you see better interest offered in NRE fixed deposit than you can leverage that because both NRE and NRO fixed deposit holds money in Indian Rupees (INR) but just be cautious and read first few differences between NRE and NRO fixed deposit if you intention is taking money back to abroad because both NRE and NRO term deposit are subject to Currency risk, if Exchange rates will not in your favor once your NRE or NRO FD matures than you might loose instead of gaining for depositing money in Indian Rupees for 3 years in India on the other hand you might get better returns if exchange rates turns into your favor. Anyway I suggest avoiding currency risk and only investing amount which you definitely want to keep as Indian Rupee and don't want to repatriate. There are other option available like FCNR Fixed deposit which allows you to keep money in foreign currency and get better returns than what is offered by foreign banks.

5) Another difference between NRE and NRO fixed deposit is How to transfer or deposit money ? NRE fixed deposit can only be open by sending foreign currency chece, remitting foreign currency directly to your NRE Saving account using money2India, remit2India orclick2Remit or any other remitting services. You can not open NRE fixed deposit by transferring Indian rupees from any other Resident or NRO Saving account. this is a restriction, On the other hand NRO Fixed deposit can be open by transferring money from NRE Saving account or income earned in India, e.g. Rental income, Stock dividends, short term capital gains, long term capital gains etc.

These were some of the important differences between NRE and NRO fixed deposit, which will help you to decide whether you shouldinvest in NRE fixed deposit or open an NRO fixed deposit. Decide based upon your need and priority. My suggestion is that if choose NRE fixed deposit over NRO fixed deposit t to get tax benefits and facility to send principle and interest back to foreign currency in case your required. Chose NRO fixed deposit if you wan to open term deposit account jointly with your Non NRI family members.