Difference between NRE and NRO accounts

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.

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:

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:

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:

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:

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:

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.