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NRE, NRO Or FCNR Account – Which is better for NRI?



Non-Resident External (NRE)  - A NRE account for an NRI is a bank account that’s opened by depositing foreign currency at the time of opening a bank account. This currency can be tendered in the form of traveler’s checks or notes. NRE Account are best suitable for people who needs to make payments in INR or want to make investments in India from his/her overseas earnings and at the same time you want your Rupee savings to be freely Repatriable.

Non-Resident Ordinary (NRO) - A NRO account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account. It offers the same facilities as an NRE account, except that any repatriation done through this account should be reported to RBI by filling up prescribed forms. NRO Accounts are best suitable for people who want to deposit his income in India from sources such as rent, dividends etc, and you want your investments in India to fetch higher returns.

Foreign Currency Non Resident Account (FCNR) – FCNR accounts are denominated in foreign currency. The source of funds deposited into FCNR accounts have to be from sources abroad. They can also be from your other NRE or FCNR accounts. FCNR Accounts are best suitable for people who wish to keep his overseas savings in India but do not want to convert them in INR.

Difference between NRE vs NRO vs FCNR Account

Points of Difference NRE NRO FCNR
Best Suited For? To park overseas savings remitted to India by converting to INR To park Indian earnings like rent, Indian salary, dividend, etc To maintain account in Foreign Currency.
Currency  Indian Rupees Indian Rupees Foreign currencies  designated by  Presently in US$, GBP, EURO, Japanese Yen , Australian $ and Canadian $.
Eligibility NRI NRI, PIO , OCB NRI, PIO
Joint Holding With Resident No Yes No
Joint Holding  With NRI Yes Yes Yes
Type of Accounts Savings, Current, Recurring Deposit or Fixed Deposits. Saving, Current, Recurring  and Fixed Deposits account. Can be opened as Fixed Deposits.
Nomination Permissible Permissible with NRIs as well as Residents. Permissible
Repatriation Principal & Interest-both Fully Repatriable. Interest   Repatriable-  subject  to payment of tax,
Balance repatriable upto US$ 1 mn per financial year [under US $ one million scheme]
Principal and Interest – both Fully Repatriable.
Taxation Interest exempt from Income Tax. Balance not subject to Wealth Tax. No Gift Tax provisions in India. However w.e.f. 1-4-2006 amount received in excess of Rs.50, 000 by way of gifts from persons other than specified relatives is included in donee’s income and chargeable to income tax. Interest income liable to tax.
Balance not subject to Wealth Tax.
No Gift Tax provisions in India. However w.e.f. 1-4-2006 amount received in excess of Rs.50, 000 by way of gifts from persons other than specified relatives is included in donee’s income and chargeable to income tax.
Same as NRE Account
Interest Rate linked to the LIBOR being notified by Reserve bank of India from time to time. Compounded quarterly. Banks can offer at par with resident accounts. Rate linked to the LIBOR being notified by Reserve bank of India from time to time. Compounded Half Yearly.
Loans Available to account holder as well as third party resident in India.    LOANS IN INDIA-To ACCOUNT HOLDER: For business, investment in shares & securities, purchase of house property for own residential purpose and any other personal purpose subject to a maxi. of INR 10 mn. LOANS IN INDIA-To 3RD PARTY: For personal or business purpose subject to a maxi. of INR 10 mn. LOANS OVERSEAS: Fund based/ non fund based facility for any bonafide purpose. Available to account holder as well as third party resident in India. Same as NRE Account
Transfers Transfer to NRE/FCNR Account of the account-holder or any other NRI permitted. Gift to Resident/NRI permitted [POA cannot make a Gift on behalf of an NRI] Permissible in account holder’s other  NRO accounts Same As NRE Account
Power of attorney An attorney can operate an account but cannot open the account, make gift, transfer funds to another NRE Account nor remit abroad .However an attorney can withdraw for local payments or remittance to the account holder himself through normal banking channels provided specific powers are granted. An attorney can operate an account but cannot open the account, make gift, transfer funds to another NRE Account nor remit abroad .However an attorney can withdraw for local payments or remittance to the account holder himself through normal banking channels provided specific powers are granted.
Renewal / Switching of Account Can be renewed and easily transferred to account holder’s another NRE / FCNR account. Transfer to another NRI’s NRE / FCNR account permitted. Transfer abroad by way of remittance – Allowed. The account can also be shifted from one bank to another bank in India. Same As NRE Account
Returning NRI’s NRE account is to be re-designated as resident account immediately upon return or Funds is transferred to Resident Foreign Currency (RFC) Account immediately upon return. NRO account is to be re-designated as resident account immediately upon return. Can be continued and maintained as FCNR uptil maturity and thereafter transferable to:
- Residential Foreign Currency (RFC) Account or
balance converted into INR and retained in a resident rupee account.

About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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