NRI Vs NRE: Difference between NRI and NRE Account

If you are an Indian living abroad with your dependents living in India, how would you send money back home? Or how will you invest your money in India if you want to?

The answer - Through an NRI account! 

For those who are wondering why an NRI account, below’s the answer: 

According to FEMA (Foreign Exchange Management Act), an NRI is not allowed to use a savings account in India. 

NRI accounts are of three different types, each with its unique features. One of which is NRE. 

In this blog, we are going to explain the differences between an NRI and an NRE account. 

Who is an NRI?

In India, there are no specific laws that give an entity the “NRI status.” However, the below guidelines according to the Income Tax Act of 1961, are followed to determine if one is an NRI or not. 

An individual who does not satisfy the below conditions is considered a Non-Resident. 

• One who has been living in India for 182 days or more during the previous year 
• One who has been living in India for 60 days or more during the previous year and 365 days or more during four years immediately preceding the previous year.

What is the NRI Account? 

An NRI account is a type of bank account specifically made for Indians who are living outside of India. It helps them manage their income and investments in India seamlessly. 

Further, NRI accounts are of three different types, 

• NRE (Non-Resident External), 
• NRO (Non-Resident Ordinary), and 
• FCNR (Foreign Currency Non-Resident). 

Below, we have explained the unique features of all three in detail. 

Three Types of NRI Account

1. NRE (Non-Resident External)

The income that an NRI has earned from their country of residence is deposited in an NRE account. The only restriction is that money must be held in Indian rupee denominations.

Let’s understand the workings of the NRE account with an example. 

Reena, an Indian software engineer working in the USA, earns his salary in US dollars. Her family lives in India. She deposits 200$ in the NRE account from her income for household expenses. This amount will be deposited in Indian currency according to the current exchange rate. 

1$= ₹83.98, so 200$ will be ₹16795.16. 

Reena’s family will receive ₹16795.16! 

2. NRO (Non-Resident Ordinary)

If an NRI is earning income in India from rent, dividends, equity, or pension, an NRO account is used to deposit and manage that respective income. Let’s understand it with an example. 

Priya lives in France, and she owns a rental property in Mumbai. She receives rent in Indian rupees, and to manage the rental income, she opens an NRO account. 

Unlike NRE and FCNR accounts, there is a repatriation limit on NRO account transactions, i.e., up to USD 1 million per year (after taxes). 

3. FCNR (Foreign Currency Non-Resident)

This type of NRI account allows NRIs to deposit and maintain their savings in foreign currencies. Deposits in an FCNR account are held in 6 foreign currencies, including:  

• US Dollar (USD), 
• Pound Sterling (GBP), 
• Japanese Yen (JPY), 
• Euro (EURO), 
• Australian Dollar(AUD) & 
• Canadian Dollar (CAD). 

Benefits of NRI Accounts

For those living outside India, managing income earned in India seems a hard task, but with NRI accounts, one can enjoy several benefits. Below, we have a listed few! 

1. Convenient Management of Funds

NRI accounts make the whole process of funds management easier, whether it's for personal use, investments, or family support. The best part is that you can access your account from anywhere in the world through online banking. 

2. Tax Benefits

By depositing money in NRE and FCNR accounts, you will earn interest according to the prevailing interest rates. And in India, you don’t have to pay any taxes on that respective interest amount. However, the tax benefits are not available for NRO accounts. 

3. Repatriation Flexibility

One gets to enjoy repatriation flexibility with NRI accounts. By the word repatriation, we mean flexible transfers. This means you can repatriate the principal amount along with the interest earned in NRE and FCNR accounts to your country of residence without any restrictions. 

4. Investment Opportunities

Living outside India but want to invest in India? With NRO accounts, it is possible! 

Be it mutual funds, property, stock markets, bonds, or other financial instruments, you are free to invest and earn a good amount of money. 

5. Flexibility To Make Joint Accounts 

NRI accounts provide the flexibility to open joint accounts. However, there are some restrictions, like in NRE and FCNR; joint accounts can only be opened if the other person is an NRI. But in NRO, there are no restrictions, which means you are free to open a joint account with an NRI as well as an Indian resident. 

How do I Choose Which NRI Account to Open for Myself?

We have already explained the working of NRI accounts above! But if you are still confused about which NRI account to open, below’s a simple guide to help you out. 

Income Source: Determine your income source. Is it from outside India or within India? 

• Foreign Income: If your income is earned outside India, an NRE or FCNR account might be best. 
• Indian Income: If your income is from within India, an NRO account is suitable.

Currency Preference: Do you want to keep your savings in Indian Rupees (INR) or in foreign currency?

• Indian Rupees: Choose an NRE or NRO account.
• Foreign Currency: Choose an FCNR account.

Tax Considerations: Consider the tax implications on the interest earned.

• Tax-Free Interest: NRE and FCNR accounts offer tax-free interest in India.
• Taxable Interest: NRO accounts have a taxable interest.

Repatriation Needs: Think about how easily you want to circulate the funds back to your home country.

• Full Repatriation: NRE and FCNR accounts allow full repatriation of both principal and interest.
• Limited Repatriation: NRO accounts allow repatriation of up to USD 1 million per financial year after taxes.

Comparison of NRI Accounts

Parameters	Account Type
	NRE	NRO	FCNR
Purpose	Best for managing foreign income, with the benefit of tax-free interest and easy funds repatriation.	Ideal for managing income earned in India	Suitable for keeping deposits in foreign currencies
Tax on Interest	Tax-free in India	Taxed in India	Tax-free in India
Joint Account Flexibility	Can be held with another NRI	Can be held with another NRI or an Indian resident	Can be held with another NRI
Interest Rates	Varies by bank and tenure	Varies by bank and tenure	Varies by bank and tenure
Investment	Allows investment in Indian financial products	Allows investment in Indian financial products	No direct investment options; used mainly for saving
Tenure	Typically, there is no fixed tenure; it can be withdrawn anytime	No fixed tenure; can be withdrawn anytime	Fixed tenure of 1 to 5 years
Repatriation	Full repatriation (both principal and interest)	Up to USD 1 million per year (after taxes)	Full repatriation (both principal and interest)

Conclusion

Now, the difference between the NRI and NRE accounts is pretty much clear. NRI refers to an individual residing outside India, while an NRE account is a specific type of NRI bank account that NRIs can use to manage their income in Indian rupees.

Frequently Asked Questions (FAQs)

Ques 1. What are the different types of NRI accounts?

Ans. NRI accounts are of three different types. 

• NRE (Non-Resident External), 
• NRO (Non-Resident Ordinary), and 
• FCNR (Foreign Currency Non-Resident). 

Ques 2. Can I hold both NRE and NRO accounts simultaneously?

Ans. Absolutely, yes! You can hold both NRE and NRO accounts simultaneously.

Ques 3. Are NRI and NRE accounts the same?

Ans. No, NRI (Non-Resident Indian) and NRE (Non-Resident External) accounts are not the same. An NRI account refers to any bank account opened by an NRI, while an NRE account is a specific type of NRI account designed to manage income earned outside India. 

Ques 4. Can I open an NRE or NRO account if I'm not an NRI?

Ans. No, you cannot open an NRE or NRO account if you are not an NRI. These accounts are specifically designed for Non-Resident Indians to manage their finances in India and abroad. 

Ques 5. Can I deposit an INR in a NRE account?

Ans. No, you cannot deposit Indian Rupees (INR) directly into an NRE account. NRE accounts are meant to hold foreign currency, which is then converted to INR upon deposit.