Difference between NRE and NRO Bank Accounts


A Non-Resident Indian is often faced with the situation of maintaining a Rupee account in India. Primarily there are two reasons for opening such account: NRI wants to repatriate overseas earned money back to India and/or NRI wants to keep India based earnings in India.  NRI has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account. So to take a right decision, which account is more beneficial for him, it is important to understan what is the difference between NRE and NRO bank account. An NRO account can also be opened by a Person of Indian Origin (PIO) and an Overseas citizen of India (OCI).

NRIs (Non-Resident Indians) managing income earned in India and abroad may benefit from having two different types of bank accounts in India, an NRE (Non-Resident External) account and an NRO (Non-Resident Ordinary) account. Both NRE and NRO accounts may be opened in the form of savings, current, recurring, or fixed deposit accounts, and depending on your banking needs, one or both may help you more easily manage foreign and Indian-earned incomes.

    What is an NRE Account?

    An NRE account is a savings or current account held in India that allows the account holder to repatriate funds that come from outside earnings and transfer earnings to India conveniently and securely. Money transferred to an NRE account from any foreign currency is converted to INR. It permits an NRI to hold and maintain foreign currency earnings in INR. The account holder may repatriate all the funds along with the interest earned at any point of time without having to pay tax on the interest amount. Any NRI can open an NRE account.

    What is an NRO Account?

    An NRO account is a savings or current account held in India that helps NRIs manage income earned in India such as rent, dividends, or pension from abroad. The account holder can deposit and manage accumulated rupee funds conveniently through an NRO account. Foreign currency deposited into the NRO account is converted into Indian Rupees. Any NRI can open a NRO account.

    NRIs may also convert their existing resident savings account into an NRO account when their status changes from resident to non-resident. A minimum amount of Rs.10,000 must be maintained in an NRO account on a daily basis. Any repatriation done through this account should be reported to RBI.


    Difference between NRE and NRO Bank Accounts

    The differences between NRE and NRO accounts are outlined below in the following account features.

    ·     Repatriation: Repatriation is defined as sending or bringing money back to the foreign country. You can easily repatriate funds from an NRE account including the interest earned in that account. However, RBI has made some restrictions on NRO accounts.  You can remit only up to USD 1 million in a financial year (April to March). In addition, you will need a chartered accountant to complete the paperwork for you.
    ·    Taxation Laws: NRE accounts are tax exempted. Therefore, income taxes, wealth taxes, and gift taxes do not apply in India. Interest earned from these accounts is also exempt from taxes. But as per Indian Income tax laws, NRO accounts are taxable; income taxes, wealth taxes, and gift taxes do apply. Interest earned on an NRO account as also subject to taxation. However, reduced tax benefit is availed under Double Taxation Avoidance Agreement (DTAA).
    ·      Deposit and Withdrawal of Funds: You can deposit funds from a foreign country (in foreign currency) in both NRE and NRO accounts, but funds originating from India (in Indian rupees) can only be deposited in an NRO account and cannot be deposited in an NRE account. Withdrawals from both NRE and NRO accounts can only be made in INR.
    ·   Flow of Funds: In an NRE account, repatriation is allowed outside India in any currency.
    ·      Transfer: An NRE account allows you to transfer funds to another NRE account as well as to an NRO account. You can transfer funds from an NRO to another NRO account, but you cannot transfer funds from an NRO account to an NRE account.
    ·    Joint Accounts: Two NRIs can open both an NRE joint account or an NRO joint account. However, you cannot open an NRE joint account with a resident Indian. This facility is available only with an NRO joint account.
    ·     Motive or Purpose: An NRE account helps you transfer funds to India earned abroad and maintain them. While NRO accounts helps maintain regular flow of income earned in the form of rent, pensions, or dividends from India.
    ·    Effect of Exchange Rate Fluctuations: NRE accounts are exposed to two kinds of exchange loss, namely day-to-day fluctuations in the value of INR and conversion loss. NRO accounts are not at such risk.

    Choosing the right account depends on examining your and your family’s financial needs. If you foresee the need to repatriate more than a million dollars or if you want to maintain savings in INR then an NRE account may be the better option. If you want to keep India-based earnings in INR, then opt for an NRO account. With both NRE and NRO accounts, managing your funds as an NRI is made much more convenient and secure.

    Choose NRE accounts if you:
    1.  1       want to park your overseas earnings remitted to India converted to Indian Rupees;
    2.      want to maintain savings in Rupee but keep them liquid;
    3.      want to make a joint account with another NRI;
    4.      want Rupee savings to be freely repatriable.

    Choose NRO account if you:
    1.  1       want to park India based earnings in Rupees in India;
    2.      want account to deposit income earned  in India such as rent, dividends etc;
    3.      want to open account with resident Indian (close relative).

    Comparison of NRE, NRO and FCNR Bank Accounts

    Non-Resident (External)Rupee Account Scheme (NRE Account)
    Non-Resident Ordinary Rupee Account Scheme (NRO Account)
    Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR(B) Account)
    Who can open an account
    NRIs (individuals / entities of Bangladesh / Pakistan nationality / ownership require prior approval of RBI)
    Any person resident outside India (other than a person resident in Nepal and Bhutan). (individuals / entities of Bangladesh / Pakistan nationality / ownership as well as erstwhile OCBs require prior approval of RBI).
    NRIs (individuals / entities of Bangladesh/ Pakistan Nationality/ownership require prior approval of RBI)
    Joint account
    In the names of two or more non-resident individuals.With a resident close relative on 'former or survivor basis'
    May be held jointly with residents
    In the names of two or more non-resident individuals. With a resident close relative on 'former or survivor basis'.
    Currency in which account is denominated
    Indian Rupees
    Indian Rupees
    Pound Sterling, US Dollar, Jap. Yen, Euro, Canadian Dollar and Australian Dollar.  
    Not repatriable except for the following in the account - 1) Current income 2) Upto USD 1 Million per financial year (April- March), for any bonafide purpose out of the balances in NRO account / sale proceeds of assets in India acquired by way of inheritance / legacy inclusive of assets acquired out of settlement subject to certain conditions.  
    Type of Account
    Savings, Current, Recurring, Fixed Deposit  
    Savings, Current, Recurring, Fixed Deposit
    Term Deposit only
    Tax on Interest Income
    Not Taxable
     TDS on Interest earned on NRO deposits     to be deducted at 30.90%    If the interest amount paid exceeds     Rs.10 lacs, TDS will be @ 33.99%    However, deduction of TDS is subject to    DTAA with many countries.       For further information pl. refer to  IBD     Circular letter no. 5920 dt. 29.05.08      
    Not Taxable

    Concluding Remarks:

    If you are a Non Resident India (NRI), the NRE vs NRO account is no longer matter of choice but a regulatory requirement. However, you may have to choose between two accounts depending on your needs. Since there are rules regarding income earned in India and abroad, deciding between the two is no longer a matter of choice, but a matter of technical issues, and it is not a difficult one. If you have income earned overseas you need to open an NRE account and for income earned in India, you must keep it in an NRO account.

    Why not a regular savings account? This doubt may occur to you, and this confusion is very obvious. As per the prevailing rule and regulations, an NRI, cannot have regular resident savings accounts, fixed deposits, or regular bank deposit accounts in India. You will definitely need an NRO or NRE account, or both, depending on your needs.

    You may need to do a little research on which bank is best suited to you. All Indian private and public sector banks offer the option to open NRO and NRE accounts for all NRIs. The laws and regulations are almost the same for all these private and public sector banks. The only difference will be in the quality of customer service and customer support, which will definitely differ from bank to bank, so keep your research updated. When you compare on the parameters of customer services in India definitely private sector banks provide better services. So, the choice is yours with which bank you want to open your NRE or NRO account. 

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