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NRE or NRO – Which Account Best Suits Your Needs?

4 minsApril 15, 2017

Mahesh is a Non Resident Indian (NRI) living in the UK. He is doing well in the business that he set up there. He has a dependent brother in India to take care of. He transfers money to his Non Resident External (NRE) account regularly. Also, his Non Resident Ordinary (NRO) account is credited on a timely basis.

Mahesh’s affection towards his brother made his co-worker, Andrew, inquisitive. Andrew wanted to know more about these accounts that Mahesh was handling despite being abroad. Here’s how Andrew’s queries were addressed:

BasisNRE AccountNRO Account
AcronymNon Resident External AccountNon Resident Ordinary Account
MeaningIt is an account of an NRI to transfer foreign earnings to IndiaIt is an account of an NRI to manage the income earned in India
TaxabilityInterest earned is tax freeInterest earned is taxable
Repatriability Can repatriateCan repatriate the interest amount, the principle amount can be repatriated within the set limits
Joint AccountCan be opened by two NRIsCan be opened by an NRI along with an Indian citizen or another NRI
Deposits and WithdrawalsCan deposit in foreign currency, and withdraw in Indian currencyCan deposit in foreign as well as Indian currency, and withdraw in Indian currency
Exchange Rate RiskProne to riskNot prone to risk

However, Andrew still wasn’t satisfied with Mahesh’s answer. So, Mahesh explained further:

The difference between these two accounts:

  • An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; whereas, an NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. These incomes include rent, dividend, pension, interest, etc.
  • NRE accounts are exempt from tax. Neither the balance, nor the interest earned on these accounts is taxable. The interest earned on an NRO account is however taxable at 30% according to the Income Tax Act 1961.
  • The principle amount in an NRE account, and the interest accumulated thereon is open to repatriation. In other words, you can transfer these amounts to a foreign account in case of an NRE account. In case of an NRO account, the interest amount can be repatriated; however, in case of the principle amount, you can remit only up to USD 1 million in a financial year.
  • An NRI can open a joint NRO account with one or more NRIs or Indian citizens. However, there can be a joint NRE account only with another NRI.
  • Income originating outside India can be deposited into any of these accounts. However, income originating within India can be deposited only into the NRO account. Withdrawals from both the accounts can be made only in INR.
  • In case of an NRO account, if the deposit as well as the withdrawal is made in INR, there is no exchange rate risk involved; whereas, in case of an NRE account, currency fluctuations make you prone to exchange rate risks.

The Bottom Line

If your total income includes income earned in India and you want to manage it within the country, you can opt for an NRO account. An NRE account can be opened if you want to transfer your foreign income to India and want to avoid taxation liabilities.


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