NRE Accounts vs. NRO Accounts: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Updated on October 23, 2023
NRE accounts are for foreign-earned income repatriation, tax-free; NRO accounts are for holding Indian income with taxable interest.
Key Differences
NRE accounts, or Non-Resident External accounts, are banking tools designed primarily for Indians residing abroad. These accounts allow the holder to deposit their foreign income in India, in Indian Rupees. The significant advantage of an NRE account is its repatriability feature, which means the funds in the account (both principal and interest) can be fully repatriated. On the other hand, NRO accounts, or Non-Resident Ordinary accounts, are also for Indians abroad but are primarily for managing income earned in India, such as rent or dividends.
The interest earned on NRE accounts is tax-free in India. This makes it an attractive option for many non-residents who want to send their overseas earnings back home without the burden of taxation. Contrarily, NRO accounts do not enjoy this tax benefit. Interest earned in NRO accounts is subject to Indian tax laws, making it taxable.
While NRE accounts can only be funded from abroad, NRO accounts can be funded from both foreign sources and sources within India. This versatility makes NRO accounts suitable for those who still have financial ties in India, like receiving a pension or rent. Meanwhile, the NRE accounts serve those who want to maintain a savings account in India with their foreign earnings.
Both NRE accounts and NRO accounts allow joint account holding. However, for NRE accounts, the joint account holder must also be an NRI. In the case of NRO accounts, the joint holder can be an NRI or a resident Indian. This distinction provides flexibility depending on the needs of the account holders.
It's essential to understand the purpose behind opening either an NRE or NRO account. While both serve non-residents, NRE accounts are best for those wanting to save their foreign income in India without the worry of taxation, and NRO accounts are ideal for those who still have income sources in India.
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Comparison Chart
Purpose
For depositing foreign income in India
For managing income earned in India
Taxation
Interest is tax-free
Interest is taxable
Funding
Can only be funded from abroad
Can be funded from both foreign and Indian sources
Joint Account Holding
Joint holder must also be an NRI
Joint holder can be an NRI or a resident Indian
Repatriability
Fully repatriable
Restricted repatriability
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NRE Accounts and NRO Accounts Definitions
NRE Accounts
A tax-free savings tool for NRIs with full repatriation benefits.
Due to the tax benefits, Ravi preferred NRE accounts over other options.
NRO Accounts
Can be jointly held with both NRIs and resident Indians.
Aman, an NRI, had NRO accounts jointly with his mother, who lived in Chennai.
NRE Accounts
Suitable for NRIs wanting to save foreign income in India tax-free.
To save on tax, Ajay used his NRE accounts for depositing his earnings from Dubai.
NRO Accounts
Interest earned is subject to Indian taxation.
The interest from Sita's NRO accounts was taxed as per Indian laws.
NRE Accounts
An account for non-residents to deposit foreign earnings in India.
She transferred her US salary to her NRE accounts in Mumbai.
NRO Accounts
Offers restricted repatriation compared to NRE accounts.
Neeta found it easier to repatriate funds from her NRE accounts than her NRO accounts.
NRE Accounts
Allows for joint holding, provided all holders are NRIs.
Both Meera and her husband, living in Canada, opened joint NRE accounts in Bengaluru.
NRO Accounts
Suitable for those with Indian earnings like rent, dividends, or pensions.
Ramesh's pension from his Indian employer went straight to his NRO accounts.
NRE Accounts
Exclusively for foreign income and maintained in Indian Rupees.
Despite earning in dollars, Priya's NRE accounts showed her balance in rupees.
NRO Accounts
Designed for NRIs to manage their income earned within India.
Rahul used his NRO accounts to collect rent from his Delhi property.
FAQs
Can I repatriate money from NRE accounts?
Yes, funds in NRE accounts, both principal and interest, are fully repatriable.
Is the interest on NRE accounts taxable?
No, the interest earned on NRE accounts is tax-free in India.
What are NRE accounts?
NRE accounts are banking accounts for non-residents to deposit their foreign earnings in India.
Are NRO accounts taxable?
Yes, the interest earned on NRO accounts is subject to Indian taxation.
Why might someone prefer NRO accounts?
NRO accounts are suited for those who have income sources in India, like rent or pension.
Do NRE accounts and NRO accounts offer internet banking facilities?
Yes, most banks provide internet banking facilities for both NRE and NRO accounts.
Can I hold joint NRE accounts with a resident Indian?
No, for joint NRE accounts, all account holders must be NRIs.
Are there any minimum balance requirements for NRE accounts and NRO accounts?
Yes, banks might have minimum balance requirements, but they vary by bank.
Is it easy to convert an existing resident account to NRE accounts or NRO accounts?
Upon becoming an NRI, one should convert their resident account to either an NRE or an NRO account, but the process varies by bank.
Which account is better for investing in Indian stocks, NRE accounts or NRO accounts?
Both can be used, but NRO accounts might be more straightforward for managing taxes on Indian stock earnings.
What are NRO accounts?
NRO accounts are designed for non-residents to manage their income earned within India.
Can I open both NRE accounts and NRO accounts?
Yes, an individual can have both NRE and NRO accounts simultaneously.
Can I get a loan against my NRE accounts or NRO accounts in India?
Yes, many banks offer loans against both NRE and NRO account deposits, but terms can vary.
How can I fund my NRO accounts?
NRO accounts can be funded from both foreign sources and sources within India.
In what currency are NRE accounts and NRO accounts maintained?
Both NRE accounts and NRO accounts are maintained in Indian Rupees.
Can I transfer funds between NRE accounts and NRO accounts?
Yes, but there are certain restrictions and tax implications to consider.
Is repatriation from NRO accounts unrestricted?
No, there are restrictions on repatriating funds from NRO accounts.
Can NRE accounts be funded with Indian earnings?
No, NRE accounts can only be funded with foreign earnings.
Who can be a joint holder in NRO accounts?
For NRO accounts, the joint holder can be an NRI or a resident Indian.
Why choose NRE accounts over NRO accounts?
NRE accounts are ideal for saving foreign income in India tax-free and with full repatriation benefits.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
