Difference Between NRE and NRO Account
If you’re an NRI (Non-Resident Indian), choosing the right type of bank account in India can be crucial for managing your finances efficiently. Two of the most common options are the NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts. While they may seem similar at a glance, they serve different purposes, come with different rules, and offer distinct tax implications.
In this article, we’ll explore the key differences between NRE and NRO accounts—right from purpose and taxability to fund repatriation, joint ownership, and more—to help you make the most informed decision.
What Are NRE and NRO Accounts?
NRE (Non-Resident External) Account:
An NRE account is a rupee-denominated account that allows NRIs to park foreign earnings in India. Funds must be deposited in foreign currency and are converted into Indian Rupees.
NRO (Non-Resident Ordinary) Account:
An NRO account is also a rupee-denominated account, but it is designed for managing income earned in India, such as rent, dividends, pensions, or any local earnings.
Key Differences Between NRE and NRO Accounts
Here’s a detailed side-by-side comparison:
| Feature | NRE Account | NRO Account |
|---|---|---|
| Purpose | To deposit foreign income in India | To manage Indian income (e.g. rent, dividends, salary) |
| Currency of Deposit | Only foreign currency | Both foreign and Indian currency |
| Account Type | Savings, current, recurring, or fixed deposit | Savings, current, recurring, or fixed deposit |
| Repatriation (transfer abroad) | Fully and freely repatriable | Principal repatriation up to $1 million/year with documentation; interest is repatriable |
| Taxability | Tax-free (principal + interest) | Interest is subject to TDS (up to 30% + surcharge/cess) |
| Joint Account Eligibility | Can be held jointly with another NRI only | Can be held jointly with NRI or resident Indian |
| Exchange Rate Risk | Yes – subject to INR fluctuations | No – funds already in INR |
| Account Opening Requirement | Requires foreign source of income and NRI status | NRI status required, but income may be from Indian sources |
| Currency Conversion | Foreign currency converted to INR | Foreign or Indian currency converted to INR as needed |
Let’s Break Down the Finest Details
1. Tax Treatment: A Critical Factor
- NRE accounts enjoy complete tax exemption in India – both on the principal and on the interest earned.
- NRO accounts are taxable under Indian Income Tax laws. Interest earned is subject to TDS at 30%, which can be reduced via Double Taxation Avoidance Agreements (DTAA) if applicable.
🔍 Tip: If you’re looking to save on taxes, the NRE account is generally more favorable.
2. Repatriation: Can You Move Funds Freely?
- With NRE, both principal and interest are fully repatriable without any restriction.
- With NRO, only interest is freely repatriable. Principal can be repatriated up to USD 1 million per financial year, but you must submit Form 15CA and 15CB (certified by a Chartered Accountant).
3. Income Sources: Where’s the Money Coming From?
- Use NRE to park income earned abroad (e.g., salary, investments).
- Use NRO to manage income from Indian assets (e.g., rental income, dividends, pensions, Indian business income).
4. Currency Risk: A Subtle Difference
- NRE accounts are exposed to currency risk. If the INR weakens, the value of your savings may fall when converted back to foreign currency.
- NRO accounts, already in INR, do not carry currency risk—but this means they are more useful for Indian spending or investment, not for moving money abroad.
5. Joint Ownership Rules
- NRE account can be jointly held only with another NRI or PIO.
- NRO account can be jointly held with an Indian resident, which is useful for managing shared assets or family obligations in India.
✅ Example: If your parents in India need to operate the account, an NRO account is the practical choice.
When Should You Choose NRE vs. NRO?
| Scenario | Best Choice |
|---|---|
| You want to save foreign income in India and repatriate freely | NRE |
| You want to receive rent from a property in India | NRO |
| You want to avoid taxes on interest earned in India | NRE |
| You need to share account access with a family member in India | NRO |
| You want to invest foreign income in Indian FDs or mutual funds | NRE |
| You want to pay utility bills or make purchases in India | NRO |
Can You Convert Between NRE and NRO?
Yes, but not directly. If you need to convert:
- NRE to NRO: Submit a written request to your bank. This is usually allowed if your status changes (e.g., returning to India).
- NRO to NRE: Not allowed directly due to tax and repatriation limits. You’ll need to repatriate funds from NRO, then re-deposit in NRE.
Documentation Required
To open either account, you’ll typically need:
- Valid passport and visa
- Proof of NRI status
- Overseas and Indian address proofs
- PAN card or Form 60
- Recent passport-size photos
NRO accounts may additionally require documentation for Indian income sources.
Final Thoughts
Choosing between an NRE and NRO account depends on your income sources, financial goals, and repatriation needs. Here’s a quick rule of thumb:
- Use NRE to bring foreign income into India, save on taxes, and maintain liquidity.
- Use NRO to manage Indian income, comply with tax regulations, and support dependents or pay Indian expenses.
Understanding the nuanced differences between the two ensures better financial planning and regulatory compliance. For many NRIs, maintaining both accounts may offer the best of both worlds.
