Difference Between NRO and Savings Account

Management of money across countries can be overwhelming, deciding which bank account best suits your requirement as an NRI. Though ordinary savings accounts are known to most people, NRO (Non-Resident Ordinary) accounts have their own intended purpose for the Indians living outside their homeland. It is important that the NRIs understand the difference between NRO and savings account, so that they can make informed banking decisions that align with their financial needs and regulatory requirements. 

What is an NRO Account?

An NRO account is a rupee account that is specifically aimed at helping Non-Resident Indians to save their income in India. The special form of account assists NRIs in retaining the financial relationship with India while complying with Reserve Bank of India (RBI) regulations.

An NRO account is very important because once someone becomes a non-resident under FEMA, they can't legally use a regular resident savings account anymore. Instead, this needs to be changed to an NRO account to ensure taxes can be paid correctly, tracking is done correctly, and procedures are followed.

NRO Account Features Include:

• Purpose: The purpose of the NRIs is to allow depositing and managing income derived in India (rent, dividends, pension, interest and other legitimate incomes) inside the country.
  
  

• Currency: Only in Indian Rupees (INR).
  
  

• Account Holder Eligibility: Only Non-Resident Indians who have attained non-resident status according to FEMA regulations are eligible.
  
  

• Regulatory Compliance: There is a compulsion to convert a regular savings account to non-resident status when an individual becomes non-resident (usually after spending over 182 days in a financial year outside the domestic country).

What is a Savings Account?

A regular savings account is a deposit account offered by banks to resident Indians for saving money and earning interest on deposited amounts. These accounts are the most common banking accounts used by individuals who maintain their primary residence in India.

Savings Accounts Features Include:

• Purpose: Created to help resident Indians save money, take care of daily transactions and get interest on deposits.

• Eligibility: It can be received only by the people who are permitted as the residents Indians under the rules of the income tax and FEMA.

• Currency: Indian Rupees (INR).

• Account Access: Offers elaborate banking services such as ATM withdrawal services, internet banking, mobile banking, check books and debit cards.

Key Differences: NRO Account vs Savings Account

The table below encapsulates the key differences NRIs need to take into account when selecting between an NRO Account vs Savings Account, to meet their financial requirements and to comply with the compliance.

*Banks accept foreign inward remittances to credit an NRO account, but those remittances are converted into INR on credit

How to Open an NRO Account?

A simple step-by-step guide to submitting your documents and opening your NRO account as an NRI.

Step 1: Fill out the NRO account opening form and submit it along with your passport, visa, and overseas address proof.
Step 2: Provide your Indian address, if available, for correspondence purposes.
Step 3: Submit your PAN card or Form 60 to fulfill tax compliance requirements.
Step 4: Attach a recent passport-size photograph as part of the documentation.
Step 5: Apply through the bank’s online portal. Majority of the banks provide NRI with digital applications and e-KYC options.

How to Operate an NRO Account?

Essential tips for operating your NRO account efficiently using online banking:

• Use internet and mobile banking to access your account and check your statements, transfer funds, pay your bills and manage investments.
  
  

• Sustain the necessary average monthly balance which varies according to most banks which is about Rs. 75,000 on average.
  
  

• Deposit or withdraw money with the help of ATM/debit cards, and pay with a chequebook provided by your bank.
  
  

• Seamlessly manage India-based financial activities, including property payments, utility bills and recurring expenses.

When Should You Choose an NRO Account?

Deciding between an NRO account and a savings account depends entirely on your residency status and financial circumstances. Understanding when to opt for an NRO account is crucial for proper financial planning and regulatory compliance.

You Must Choose an NRO Account If:

• The status of a non-resident has been acquired by spending over 182 days in a foreign country over 182 days in a financial year because of employment, business or any other reason.

• You still have income in India either through rental property, fixed deposit or dividends on Indian investments or pension, or there are business earnings.

NRO Accounts are Particularly Useful When:

• You want to be able to control your Indian cost without having to exchange the foreign currency into Indian Rupees on a regular basis.

• You have to sustain financial contacts with the relatives in India with joint account facilities.

• You plan to return to India eventually and want to accumulate rupee funds for future use without immediate repatriation needs.

Conclusion

The difference between NRO and savings account primarily depends on your residency status, regulatory requirements, and financial goals. A regular savings account is meant for resident Indians with minimal restrictions, whereas an NRO account is designed for NRIs to manage India-sourced income under RBI and FEMA guidelines. Understanding this nro account vs savings account distinction ensures compliance and better financial planning.

Every NRI needs to know the distinction between an NRO and a savings account to protect their finances and stay out of problems with the law.

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FAQs

1. Would I be able to revert my NRO account to that of a savings account?

Yes, when you are back in India and have returned to resident status under FEMA and income tax regulations, then you can convert your NRO account to a regular savings account by providing evidence of residence. This normally takes up 7-10 working days by the banks.

2. What will be the consequence of failure to convert my savings account to NRO once I become an NRI?

Failure to convert your savings account into a NRO/NRE is a FEMA violation, which attracts penalty, blocking of the account, restriction of the transaction and notices by the bank. It may also trigger the repatriation problem and international tax controversy in India and overseas.

3. Do you pay tax on NRO?

Yes, Income in an NRO account is taxed at 30 percent with surcharge and cess. NRIs are able to save on their tax liability by availing of the benefits of DTAA which avoids being taxed on the same income in two countries.

4. What is the 4-year rule for NRI?

According to the 4-year rule, you become a resident when you spend 182 days in one year, or 365 days in the last four years and an additional 60/120 days this year. Otherwise, you are an NRI and you are taxed only on Indian based income.