Introduction

When pursuing a master's degree abroad, one of the crucial decisions you need to make involves managing your finances. One key consideration is whether to convert your Indian savings account to either a Non-Resident External (NRE) account or a Non-Resident Ordinary (NRO) account. Understanding the differences and implications of each account is essential for making the right choice.

Key Differences Between NRE and NRO Accounts

NRE Account

Currency - An NRE account is maintained in Indian Rupees (INR) but allows for the deposit of foreign currency. This provides flexibility for managing your international income.

Repatriation - Funds in an NRE account are fully repatriable. You can transfer money to and from India without any restrictions, making it easier to manage your INR and foreign currency balances.

Interest - Interest earned on NRE account balances is tax-free in India. This can be a significant advantage, especially if you have substantial income earned abroad.

Usage - An NRE account is ideal for managing income earned abroad and for transferring funds back to India. It is particularly useful for structuring your finances while studying abroad.

NRO Account

Currency - Similar to NRE, an NRO account is maintained in INR. It also allows for the deposit of foreign currency.

Repatriation - Repatriation from an NRO account is more restrictive. You can repatriate up to INR 1 million per financial year after paying applicable taxes. This limit means careful planning is necessary to manage financial flows.

Interest - Interest earned on NRO account balances is subject to Indian income tax. This means you must factor in tax implications when managing your account.

Usage - An NRO account is suitable for managing income earned in India, such as salaries, rent, dividends, and interest. It is particularly useful if you have significant income sources in India.

Recommendations

If you plan to earn income abroad: An NRE account is generally better. The tax benefits and easier repatriation capabilities make it more advantageous for handling foreign income.

If you have income in India: An NRO account is more appropriate for managing that income. While it has stricter repatriation rules, it offers clearer tax benefits for in-country earnings.

Practical Considerations

Your current savings bank account in India will remain as is during your master's program abroad. However, you will need to ensure that your bank account remains active and that any necessary transactions can be managed. For example, if you need to access OTP (One Time Password) for transactions, you may need to retain an Indian SIM card or use international roaming.

If you have an international debit card (such as Visa or MasterCard), you can withdraw a certain amount in the local currency from ATMs every month to cover your expenses. This flexibility will help you manage your day-to-day finances while abroad.

It's also important to consider your long-term plans. If you plan to stay abroad for a long term and earn income from abroad, you might choose to open an NRE account to maximize repatriation flexibility.

However, if you plan to manage and repatriate Indian income only, an NRO account would be more suitable. Your old savings account can remain as is, but you'll need to address any issues with KYC (Know Your Customer) renewal if you are abroad for an extended period.

Conclusion

Choosing between an NRE and NRO account depends on your specific financial situation and long-term goals. It's advisable to consult with a financial advisor to tailor the decision to your unique circumstances. Understanding the implications of each account and the flexibility they offer can help you navigate the complexities of managing finances while abroad.