Non-resident Indians living and working in the UAE hear about the NRO and NRE accounts very often. But they aren’t always clear about which account they need to opt for or why this would matter. In our blog today, we aim at delving into the concept of NRO and NRE accounts to help the non-residents to make better and clearer choices.
Important Initial Considerations for NRIs
Before we get into the details of NRE and NRO bank accounts, it is important to clarify that this information applies specifically to Indians who have become Non-Resident Indians (NRIs). An individual is treated as an NRI if they stay outside India for the prescribed number of days as per Indian tax laws.
One of the first things any Indian becoming an NRI must do is to update their residential status from ‘Resident Indian’ to ‘NRI’ in all relevant places. This includes their existing savings bank accounts. When you approach your bank to change the status of your resident savings account, the banker will usually advise you to open an NRO account to comply with the regulations.
It is equally important to update your demat account status with your stockbroker and ensure that all mutual fund investments, trading accounts, and other linked accounts are reclassified appropriately. Failure to update these can result in non-compliance under FEMA.
What is an NRO Account?
Let’s first understand the NRO (Non-Resident Ordinary) account, since most NRIs start with this. When a resident savings account is converted, it typically becomes an NRO account.
The NRO account allows you to:
- Park your inward remittances from abroad.
- This is available for both Non Residents and Resident but not ordinarily resident as per the Income Tax Laws.
- This can be maintained in Indian Rupees (INR) and can be opened with another NRI as well as with any Indian Residents.
- Deposit and manage income earned within India, such as rental income, interest from fixed deposits, dividends, or any other local earnings.
- Repatriation is allowed from NRO to NRE with in a limit of 1 million USD in a financial year. The process could be little tedious as applicable taxes must be deducted and form 15CA and 15CB must be required.
One key aspect to note is TDS (Tax Deducted at Source):
Once your status is changed to NRI, the bank is required to deduct TDS on any interest earned in your NRO account under Section 195 of the Income Tax Act. This withholding ensures tax compliance for non-residents on Indian-sourced income.
What is an NRE Account?
The NRE (Non-Resident External) account serves a more specific purpose and is generally used for parking foreign income. An NRE account allows you to hold deposits in foreign currencies- USD, GBP, EUR, and others (banks may offer different options, so always check the latest details online)-
- This is available for both Non-Residents and Resident but not ordinarily resident as per the Income Tax Laws.
- Account could be opened with another NRI and close relative resident Indian.
- Only Foreign income can be deposited. Overseas salaries or business income could be deposited.
- It can be fully repatriated. You can freely move both the principal and interest back to the UAE or any other country without restrictions.
- Only the interest earned is tax free in India. However, any income generated from these but transferred to NRO account will be taxable.
- Basic forms like form A2 and declarations are required for repatriation.
Which account is to be used?
NRE Account is ideal for savings and investments in India from foreign income. On the other hand, NRO Account is good for managing local obligations — paying EMIs, household expenses, or receiving rent.
If you’re planning to open an NRE or NRO account, obtaining a Tax Residency Certificate in the UAE can simplify cross-border compliance.
Why Does This Matter for UAE NRIs?
As an NRI living in the UAE, you may want to:
- Send money home to support family.
- Invest in property or stocks in India.
- Receive rent or other local income.
- Repatriate savings freely when needed.
For NRIs managing finances across borders, understanding how to open a Wio Bank account in Dubai can also be beneficial.
Our firm helps UAE-based NRIs with clear, practical advice on setting up NRE and NRO accounts, planning taxes, and staying compliant with FEMA and RBI rules. We also handle repatriation planning and offer end-to-end accounting and tax filing services in both India and the UAE, covering all under one roof.
Our firm also supports NRIs with accounting and bookkeeping services tailored to small business owners in the UAE.
Connect with our experts today at punith@bclglobiz.com.
