Know More About NRE Account vs NRO Account

By  //  August 1, 2023

Managing foreign investments in India can be challenging for Non-Resident Indians (NRIs) due to the various account options available. It can be overwhelming to navigate these options to identify the appropriate account.

NRIs typically use two popular tools to manage their funds: the NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts. Although both accounts serve the same purpose of facilitating fund management for NRIs, they differ significantly in their characteristics and functions.

This blog will analyse the differences between NRE and NRO accounts and assist you in determining which alternative is the most fitting to fulfil your needs.

 What Is an NRE Account?

An NRE account is designed for NRIs to easily deposit and manage their income earned outside India. This type of account allows NRIs to deposit funds in any currency, which are then converted and maintained in Indian rupees. NRE account holders can repatriate their funds to their foreign accounts without limitations. 

What Is an NRO Account?

An NRO account is a banking facility designed for NRIs to manage their earnings obtained within India, such as rental income, dividends, or pensions. This account enables NRIs to deposit and withdraw money in Indian rupees and perform various transactions, such as bill payments and fund transfers. Nevertheless, the funds held in an NRO account have restricted repatriability, meaning they cannot be readily transferred out of India. However, NRIs can repatriate up to USD 1 million per financial year after obtaining the necessary permissions from the RBI. 

Differences Between NRE and NRO Accounts

The significant differences between the two are outlined in the following table:

Criteria NRE Account NRO Account
Taxation Interest earned on an NRE account is not liable for taxation. Interest earned on an NRO account is taxable.
Repatriability Funds held in NRE accounts can be transferred without restrictions, meaning the initial deposit and any interest accrued can be freely and entirely repatriated. After paying applicable taxes, funds from NRO accounts can be repatriated up to a limit of USD 1 million per financial year.
Account Holding According to NRE account rules, it is permissible for only two NRIs to hold the account jointly. An NRI can open an NRO account jointly with another NRI or an Indian citizen.
Fund Transfer Funds from an NRE account can be transferred to another NRE account or an NRO account. Transfers from an NRO account are restricted to other NRO accounts only.
Deposits and Withdrawals An NRE account allows individuals to deposit funds in foreign currency and withdraw in Indian rupees. Transactions involving deposits and withdrawals in an NRO account must be made in Indian rupees.
Currency Fluctuations Fluctuations in exchange rates can impact an NRE account, resulting in potential gains or losses during currency conversion. Daily fluctuations in exchange rates do not impact an NRO account.


NRE vs NRO Account – Which One Should You Choose?

When selecting between NRE and NRO accounts, the choice largely depends on your income’s origin and intended use. If you have foreign earnings that you wish to easily bring back to India, an NRE account is the better option. On the other hand, an NRO account would be more suitable if you have income earned in India that requires management. Obtaining guidance from a financial counselor is recommended to make a well-informed decision.