Difference in NRO and NRE Accounts
Just as resident Indians can do share trading on the net, non-resident Indians (NRIs)
can also do online shares trading. If you are an NRI then you would be having NRE
and NRO accounts to maintain your bank balance in India. You need to know the difference
between NRO and NRE account when you compare NRO vs NRE account with your bank.
Here are some points to understand with respect to NRO and NRE accounts for non
resident Indians (NRIs).
NRE and NRO Account for Online Shares Trading
The guidelines of the RBI stipulate that the NRI who wishes to trade in India will
have to do trading either through a designated NRO account or an NRI account. An
NRI is not allowed to do intraday trading but can only trade in the stock markets
for delivery. How does the NRI fund the trading account with the broker? The NRI
can use the Non Resident External (NRE) account if the intent is to invest the money
on a Repatriable basis.
However, if the investment is based on a non-Repatriable basis then the NRI can
use the NRO account. The NRO account is like a resident account. Similarly, in case
of sale of shares, the sale on Repatriable basis can be credited either to the NRE
account or to the NRO account. However, when the sale is on a non-Repatriable basis
then the credit can only go into the NRO account of the NRI.
Understanding PINS Account and Non-PINS Account
Having understood NRE and NRO account for shares investing, you also need to understand
about PINS and non-PINS account. You can have a PINS or a non-PINS account under
NRE and NRO accounts. If you want to buy and sell shares in the secondary market
then it will have to be done through a PINS account.
This transaction can be on a Repatriable or non-Repatriable basis as set out above.
On the contrary, if you want to invest in IPOs or in mutual funds then a non-PINS
account is good enough. These PINS or non-PINS account need to be opened separately
from your NRE or NRO account and are a must for stock market transactions.
How does NRE account differ from a NRO Account?
There are a few basic differences between these two accounts. An NRE account is
freely Repatriable to the home country of the NRI. However, in case of NRO accounts,
the repatriation limit is up to $1 million only in one financial year. Secondly,
the NRE account is not subject to any tax in India either in the form of income
tax or wealth tax.
In case of NRO account, the interest earned on the account will be taxed according
to the income tax bracket of the NRI and is also subject to wealth tax. Thirdly,
if the NRI earns rupee income in India as salary/dividends/rent then such funds
can only be invested in the NRO account and not in the NRE account. Lastly, an NRE
account can also be held jointly with another NRI only. An NRO account can be held
jointly either with an NRI or with a resident Indian.
Guidelines for Transfer of Shares held by NRIs
RBI has issued guidelines which state that any shares owned by an NRI can only be
sold through the stock markets in India. Private sale, placement of shares or even
off-market transfers is not permitted for shares held by NRIs.
NRIs are permitted to purchase stocks and convertible debentures in India and are
also permitted to invest in IPOs and mutual funds. All NRI trades have to be necessarily
routed through the stock exchange only and have to be into domestic companies. NRI
investments in equities are governed by the Portfolio Investment NRI Scheme (PINS)
regulations and covers repatriation and non-repatriation investments by NRIs.