Difference Between NRO And NRE Account

NRO to NRE account

When it comes to banking choices for Non-Resident Indians (NRIs), Persons of Indian Origin (PIO) and OCI (Overseas Citizen of India), you will primarily have to make a choice between NRO accounts to NRE accounts. Both NRO account and NRE account come with their own sets of advantages and disadvantages. Depending on your status of residency in India, and your banking needs, it would not be too complicated to understand whether an NRE account or an NRO account would suit you. But before we go into further details about the difference between NRO and NRE, we will first need to understand NRO and NRE account meaning.

What is an NRE Account?

A Non-Resident External Account is abbreviated to an NRE account. An NRE account can be opened in an Indian bank, and can also be opened in the form of a savings, current (or checking), a fixed deposit account or a recurring deposit account. The denomination to be deposited in the account is Indian Rupee.

Who Can Open an NRE Account?

Any Non-Resident Indian (NRI) or Person of Indian Origin (PIO) or Overseas Citizen of India (OCI) can open an NRE account. Persons from Bangladesh and Pakistan can also open an NRE account, provided they have gotten prior permission from the Reserve Bank of India to do so. In this context, a person can also mean a company, a charitable trust, or an individual.

What is an NRO Account?

Non Resident Ordinary Account is abbreviated to NRO account. An NRO account is Indian rupee denominated and can be opened in the form of savings, current, fixed or recurring deposits.

Who Can Open an NRO Account?

A Non-Resident Indian (NRI) is eligible to open an NRO account in an Indian bank. A PIO (Person of Indian Origin) cardholder or an OCI (Overseas Citizen of India) cardholder can also open an NRO account. Further, foreign tourists on short visits to India and foreign students studying in India are permitted to open an NRO account.

Similarities between NRO account and NRE account

  • Both accounts can be opened in the form of savings, current, recurring or fixed deposit accounts.
  • Deposits to both accounts are made in Indian currency
  • An average monthly minimum deposit of INR 75,000 has to be maintained in both accounts

Differences Between NRO And NRE

1. Taxability

All NRE accounts in India are tax-free. This means that there will be no income tax, gift tax, etc. levied on your savings in this account. Income and interest earned on the NRO account, on the other hand, is liable to be taxed by the Indian government.

2. Repatriation

The NRE account is freely repatriable. This means that any amount of interest earned or principal earned by you is repatriable to your country of residence without any upper caps. The NRO account, on the other hand, has limited repeatability. There is a cap of USD 1 million net of applicable taxes, that can be repatriated within a month. If an NRI/OCI/PIO is earning a salary in India, then he/she is only allowed to deposit it in an NRO account. They cannot deposit such funds in an NRE account.

3. Joint Holdings

An NRI can hold an NRE account with another NRI, but not with a resident Indian. An NRO account can be jointly held with another NRI or a resident Indian.

NRO account
NRE account
Non-Resident Ordinary Account
Non-Resident External Account
It is used by NRIs to transfer foreign exchange to India
It is used by NRIs to hold and manage funds earned within India
The interest earned on income is tax-free
The interest earned on income is taxable in India
The holder can repatriate the amount in the account to the country of residence

The holder can repatriate the interest earned.

There is a set limit on the principal amount that can be repatriated

Deposits in Foreign and Indian Currency
The holder can make deposits in foreign currency and make withdrawals in Indian Rupees
The holder can deposit in Indian as well as foreign currency, and make withdrawals in Indian Rupees
Exchange Rate Risk
Susceptible to risk
Not susceptible to risk

Thus, you can see the key differences in NRO accounts over NRE accounts. Depending on your banking needs as an NRI, you can make a choice between them. The bottom line is that if you want to manage your income earned in India, then it is best to opt for an NRO account. However, if you want to avoid tax liability and freely transfer your funds abroad, then an NRE account might suit your needs.