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Difference in NRO and NRE Accounts

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.

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