Difference between NRE and NRO accounts
Updated On Jan 23, 2024
For Non-Resident Indians (NRIs), managing finances in India often involves choosing between an NRE (Non-Resident External) and an NRO (Non-Resident Ordinary) account. Each type of account serves specific financial needs and understanding the difference between NRE and NRO accounts is crucial for effective financial planning. Whether you’re an NRI looking to remit overseas income to India or manage earnings accrued in India, knowing which account best suits your needs is important.
Table of Contents
What is an NRE Account?
An NRE account is primarily used by NRIs to transfer foreign earnings to India. Here’s an overview presented in a table format:
Feature |
NRE Account Description |
Account Type |
Savings, Fixed, or Recurring Deposit account. |
Currency |
Maintained in Indian Rupees; funded with foreign currency. |
Purpose |
Ideal for depositing income earned abroad. |
Taxation |
Interest earned is tax-free in India. |
Repatriability |
Principal and interest are fully repatriable. |
Joint Account |
Can be opened with other NRIs but not with resident Indians. |
Currency Risk |
Subject to exchange rate fluctuations. |
Deposit Sources |
Funded by remittances from overseas or income earned outside India. |
The NRE account is a suitable option for NRIs looking to maintain savings in India from their foreign earnings, offering tax benefits and full repatriability. For those who need personalised advice on whether an NRE account aligns with their financial goals, InsuranceDekho's experts can provide comprehensive guidance tailored to individual needs.
What is an NRO Account?
An NRO (Non-Resident Ordinary) account is another type of bank account for NRIs, primarily for managing income earned in India. Below is a table summarising the key features of an NRO account:
Feature |
NRO Account Description |
Account Type |
Savings, Fixed, or Recurring Deposit account. |
Currency |
Maintained in Indian Rupees. |
Purpose |
Ideal for depositing income earned in India (like rent, dividends, etc.). |
Taxation |
Interest earned is taxable in India. |
Repatriability |
Interest is fully repatriable; principal repatriation has limits. |
Joint Account |
Can be opened jointly with NRIs or resident Indians. |
Currency Risk |
Account held in INR, so no direct currency exchange risk. |
Deposit Sources |
Funded by income earned in India or remittances from abroad. |
NRO accounts are a practical choice for NRIs who have earnings in India and need a convenient way to manage them, although they come with certain tax liabilities.
Differences Between an NRE and NRO Account
Understanding the differences between NRE and NRO accounts is crucial for NRIs to manage their finances effectively. Here’s a comparative table:
Aspect |
NRE Account |
NRO Account |
Primary Use |
To park foreign earnings in India |
To manage income earned in India |
Currency of Deposit |
Foreign currency |
Indian Rupees (INR) |
Tax on Interest |
Interest earned is tax-free in India |
Interest is taxable in India |
Repatriability |
Principal and interest are fully repatriable |
Interest is fully repatriable; restrictions on principal repatriation |
Joint Account Holding |
Only with NRIs |
With NRIs and resident Indians |
Deposit Sources |
Earnings/remittances from abroad |
Income earned in India and remittances from abroad |
Exchange Rate Risk |
Subject to fluctuation risk |
No direct risk as the account is in INR |
Purpose Suitability |
Suited for investment in India and saving foreign earnings |
Suited for managing Indian earrings like rent, dividends, etc. |
Choosing between an NRE and an NRO account depends on the source of your income and your specific financial needs as an NRI.
Similarities Between NRE and NRO Accounts
While NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts have distinct features, they also share several similarities. Here’s a table summarising these common aspects:
Feature |
NRE Account |
NRO Account |
Account Holders |
NRIs and PIOs |
NRIs and PIOs |
Account Types |
Savings, Fixed, Recurring Deposits |
Savings, Fixed, Recurring Deposits |
Currency |
INR |
INR |
Opening Procedure |
Similar documentation and KYC process |
Similar documentation and KYC process |
Online Banking |
Available |
Available |
Nomination Facility |
Available |
Available |
Regulation |
Governed by RBI guidelines |
Governed by RBI guidelines |
Purpose |
Manage finances for NRIs |
Manage finances for NRIs |
Joint Account Option |
Possible (only with NRIs/PIOs) |
Possible (with NRIs/PIOs and resident Indians) |
Accessibility |
Offered by most Indian banks |
Offered by most Indian banks |
Both NRE and NRO accounts serve the fundamental purpose of assisting NRIs in managing their finances in India, although in different scenarios and with distinct tax and repatriation features.
NRE vs NRO Account - Which to Choose?
Deciding between an NRE and an NRO account depends on the individual financial requirements and circumstances of the NRI. Here’s a comparative table to help you decide:
Consideration |
NRE Account |
NRO Account |
Source of Income |
Foreign earnings |
Income earned in India (rent, dividends, etc.) |
Tax Liability |
Prefer tax-free interest (in India) |
Okay with taxable interest in India |
Repatriation Needs |
Need full repatriability of funds |
Limited need for repatriation or managing Indian income |
Currency Fluctuation |
Willing to bear exchange rate risk |
Prefer to avoid exchange rate risk |
Investment Purpose |
To invest foreign earnings in India |
To manage Indian earnings or expenses |
Joint Account with Resident Indians |
Not required |
Required |
Nature of Stay Abroad |
Long-term settlement |
Short-term or frequent visits to India |
In summary, choose an NRE account if you want to repatriate foreign earnings back to India and prefer tax-free interest. Opt for an NRO account if your primary goal is to manage your income generated in India, and you are okay with the interest being taxable.
Conclusion
Navigating the differences between NRE and NRO accounts is essential for Non-Resident Indians (NRIs) managing their finances in India. While both account types offer unique benefits tailored to different financial needs, understanding their specific features, tax implications, and repatriation rules is crucial. Whether to choose an NRE or NRO account depends on the source of your income, tax considerations, and repatriation needs.
FAQs on NRE and NRO Accounts
- What are NRE and NRO accounts?
NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts are bank accounts in India for NRIs to manage their foreign and Indian earnings, respectively.
- Who can open NRE and NRO accounts?
Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) are eligible to open these accounts.
- Can I repatriate funds from NRE and NRO accounts?
Funds (both principal and interest) in NRE accounts are fully repatriable. In NRO accounts, the interest is repatriable, but there are restrictions on principal repatriation.
- Are there tax implications for NRE and NRO accounts?
Interest earned on NRE accounts is tax-free in India, while interest on NRO accounts is taxable.
- Can I transfer funds from an NRO to an NRE account?
No, transferring funds from NRO to NRE accounts is not allowed due to repatriation restrictions.
- What types of accounts can be opened under NRE and NRO categories?
Both categories allow for Savings, Fixed, and Recurring Deposit accounts.
- Can I have joint NRE or NRO accounts?
Yes, NRE accounts can be jointly held with other NRIs, and NRO accounts can be jointly held with NRIs or resident Indians.
- What is the currency of NRE and NRO accounts?
Both NRE and NRO accounts are maintained in Indian Rupees (INR).
- How do I choose between an NRE and NRO account?
Choose based on the source of your funds (foreign earnings for NRE, Indian earnings for NRO), tax considerations, and repatriation needs.
- Can I convert my existing resident account to an NRE/NRO account?
Yes, upon changing your residential status to NRI, you should convert your resident account to an NRO account. You can also open an NRE account separately.