If you are a Non-resident Indian (NRI), we are sure you have had the need to repatriate money earned overseas to India. Or, you might be earning money from a business or properties in India which you would like to easily manage from your foreign location. Here’s where NRE and NRO accounts come into the picture. NRE (Non-resident external) and NRO (Non-resident ordinary) accounts are like any other Savings or Current accounts, but for the exclusive use by Non-Resident Indians (NRIs). Both accounts can be opened in the form of Savings, Current, Recurring or Fixed Deposit accounts. These accounts allow NRIs to transfer funds from a foreign country to India and the other way round. It’s wise to note that it’s easier to repatriate funds from an NRE account than an NRO account. Keep in mind, deposits made in in other currencies the two accounts are converted to Indian Rupees.
Check This: NRE Savings Account v/s NRO Savings Account
An NRE account can only be opened by a Non-Resident Indian (NRI), a Person of Indian Origin (PIO), or a Foreign National.
We all understand the concept of Non-Resident Indian well. But just in case there is any confusion – a Non-Resident Indian is an Indian Passport Holder who has emigrated to another country for six months or more for the purpose of education, work or the like.
A Person of Indian Origin is one who is not a citizen of India but can trace his/her origin or ancestry to the country. A PIO could also be a person who has given up Indian citizenship to take up the citizenship of another country.
A Foreign National, on the other hand, is a person who is not a citizen of the country he/she is residing in. Hence, a Canadian citizen living in India, for the purpose of work, will qualify as a foreign national.
Back to the NRO account – An NRO account can also be opened by a Person of Indian origin and an Overseas Citizen of India (OCI). Remember, both NRE and NRO accounts are maintained in India.
What’s an NRE Account?
If an NRI wishes to conveniently and safely repatriate funds, earned abroad, to India, they can do so by opening an NRE account. NRE account holders can transfer money to their accounts in any currency which then gets converted to Indian Rupees. What’s more, this account is tax-free. You don’t have to pay income, gift, or wealth tax on funds kept in an NRE account or on the interest earned. Another interesting feature of this account is that there is no upper limit on the transaction amount. But keep in mind, you cannot deposit Indian Rupees in this account. To be able to deposit Indian currency, you must open an NRO account.
What’s an NRO Account?
While an NRE account is only for money earned abroad, you can deposit foreign funds, as well your income/funds from India, in an NRO account. It could be rent from your house, stock dividends, or pension from abroad. Unlike an NRE account, this account draws taxes. You have to pay all the applicable income, gift and wealth taxes on the funds in your account. However, you can avail of tax benefits under the Double Taxation Avoidance Agreement (DTAA).
This account also caps the value of transactions to $1 million in a financial year. Along with this, details of every transaction made in an NRO account needs to be reported to the RBI. You might need to hire a Chartered Accountant to do all the tricky paperwork for you.
When resident Indians become NRIs they can convert their regular savings account to an NRO account.
Useful Tip: Withdrawal from both NRE and NRO accounts will only be in Indian Rupees.
The following table shows the differences between the two accounts.
| NRE | NRO |
| No taxes on funds and interest earned. | Income, gift, and wealth taxes applicable on funds and interest earned.
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| No limit on the amount of transaction. | Transaction amount limited to $1 million in one financial year. |
| No paperwork required. No need for a CA. | Every transaction must be reported to the RBI. Might require a CA’s help for paperwork. |
| Only those funds earned in a foreign country can be deposited to this account. | Funds earned in a foreign country and in India can be deposited in an NRO account. |
| You can transfer funds from an NRE account to another NRE or NRO account. | You can transfer funds from an NRO account only to another NRO account. Fund transfer from NRO to NRE account is not permissible. |
| An NRI can open a joint NRE account with another NRI, but not an Indian resident. | An NRI can open a joint NRO account with a resident Indian. |
Additional Reading: Do All NRIs Need To File Tax Before 31st July?
With these differences well laid out, you can decide which of the two accounts suits your needs the best. If it’s about maintaining your earnings in India, opening an NRO account will be a good option. If you are looking to repatriate funds from abroad, NRE is your answer.